Class Action Fairness Act The Fairness Act of 2005 A Five-Year Perspective

By David R. Geiger, Eric A. Haskell and Rachel M. Brown

Experience suggests that the statute has enjoyed some success in achieving its principal aims, thanks both to its statutory Enactment of the Class Action Fairness Act (CAFA) language and judicial on February 18, 2005, capped eight years of legislative interpretation. efforts spanning five Congresses. Pub. L. 109-2, §2(b) (Feb. 18, 2005). CAFA responded to numerous class action abuses, including the excessive fees while class members following: received little or no recovery; • Class counsel’s strategic of par- • The fact that the prohibitive costs of liti- ties that, under existing procedural and gating class actions forced to jurisdictional rules—particularly the settle even frivolous claims, sometimes “complete diversity” requirement of termed “judicial blackmail”; 28 U.S.C. §1332—kept class actions of • Derogation of defendants’ due process nationwide scope out of federal courts; rights through “drive-by class certifi- • Settlements, such as “coupon settle- cations,” in which state courts would ments,” in which class counsel received certify classes without input from de-

n David R. Geiger is a partner, past Litigation Department chair and current Product Liability and Complex Tort Practice Group chair at Foley Hoag LLP. For over twenty-five years, he has defended companies in complex tort litigation throughout the United States, including in class actions and as national counsel. Mr. Geiger is a member of DRI’s Product Liability Committee and Drug and Medical Device Committee (including its Steering Committee), and is a frequent writer and speaker on product liability and related topics. Eric A. Haskell and Rachel M. Brown are associates in Foley Hoag’s Litigation Department and Product Liability and Complex Tort Practice Group.

12 n For The Defense n January 2010 © 2010 DRI. All rights reserved. ety by encouraging innovation and lower- itly purport to modify federal courts’ strict ing consumer prices. Pub. L. 109-2, §2(b) construction of diversity . (Feb. 18, 2005). Some of the first federal district To achieve these purposes, CAFA first courts to interpret CAFA reasoned that, expanded federal to because the traditional rule requiring the encompass most interstate class actions, removing party to demonstrate federal subject to certain exceptions. Second, it jurisdiction was a product of judicial inter- imposed substantive limitations on the set- pretation rather than statutory language, tlement of class actions, particularly cou- it was appropriate to effectuate Congress’ pon settlements. This article will review the intent—expressly stated in the Senate Judi- development of the law in these two areas ciary Committee report—that the burden since CAFA’s enactment five years ago. It of proof concerning jurisdiction “shift” will then conclude by assessing the extent to the party seeking remand, typically a to which CAFA has met its goals. , even though CAFA made no such change to any statutory language. See, e.g., CAFA’s Limited Legislative History Berry v. Am. Express Publ’g Corp., 381 F. The Senate Judiciary Committee report Supp. 2d 1118, 1121–23 (C.D. Cal. 2005) was the only committee report on CAFA to (citing S. Rep. No. 109-14, at 43–44). Every emerge from its enacting Congress. At least court of appeals to consider the issue, how- one federal court of appeals has described ever, has held that CAFA does not shift the the report as having “minimal” interpre- jurisdictional proof burden, usually not- tative value because it was issued only ing that Congress is presumed to have leg- after CAFA became law. Blockbuster, Inc. islated against the backdrop of preexisting v. Galeno, 472 F.3d 53, 58 (2d Cir. 2006). interpretations of §1332 and legislative his- Another circuit court, however, has stated tory does not trump statutory silence. See that the report actually was submitted to Strawn v. AT&T Mobility LLC, 530 F.3d the Senate while Congress was considering 293, 298 (4th Cir. 2008) (collecting cases); the legislation, leading that court to rely on Amoche v. Guar. Trust Life Ins. Co., 556 F.3d fendants, and in some cases before they the report in interpreting the statute. Low- 41, 48 (1st Cir. 2009); Bell v. Hershey Co., were even served with ; ery v. Ala. Power Co., 483 F.3d 1184, 1206 557 F.3d 953, 956 (8th Cir. 2009). • Certain state courts’ excessively per- n.50 (11th Cir. 2007). A more two-sided controversy concerns missive attitudes toward class certifi- the standard by which a removing de- cation, including certification of classes Expanded Federal Diversity fendant must demonstrate the predicates expressly rejected by federal or other Jurisdiction for federal jurisdiction, particularly the state courts; CAFA expanded federal diversity juris- amount in controversy if a does • The inefficiency of duplicative “copy- diction under 28 U.S.C. §1332 to include not specify the amount sought as . cat” class actions proceeding in multiple class actions filed under Fed. R. Civ. P. 23 In the CAFA context, courts of appeals have state courts, with no way to consolidate or a similar state procedural rule in which: divided among requiring a in or coordinate them; and (1) the amount in controversy exceeds these circumstances to: (1) “show a reason- • The ability of one state court to adju- $5,000,000; (2) any plaintiff is a resident able probability that more than $5 million dicate the rights of millions of plain- of a state that is different from the state of is at stake,” see, e.g., Amoche, 556 F.3d at tiffs across multiple states in a manner residence of any defendant, i.e., minimal 48–49; (2) prove the jurisdictional amount that might contradict the laws of other diversity exists; and (3) the proposed class by a “preponderance of the evidence,” see, states. exceeds 100 plaintiffs. 28 U.S.C. §§1332(d) e.g., Abrego Abrego v. Dow Chem. Co., 443 Senate Judiciary Committee Report on (1)(B), 1332(d)(2), 1332(d)(5). CAFA also F.3d 676, 683 (9th Cir. 2006); or (3) show Class Action Fairness Act, S. Rep. No. created federal diversity jurisdiction over that it does not appear to a legal certainty 109-14, reprinted at 2005 WL 627977 (1st “mass actions,” discussed below. that the plaintiff cannot recover the juris- Sess. 2005), at 10–27; see also Class Action Prior to CAFA’s enactment, federal dictional minimum, the “inverse legal cer- Dilemmas: Pursuing Public Goals For Pri- courts had long construed diversity juris- tainty standard,” see, e.g., Frederico v. Home vate Gain (RAND Institute 2000). Accord- diction strictly, resolving doubts by finding Depot, 507 F.3d 188, 197 (3d Cir. 2007). ingly, CAFA’s stated purposes were to: (1) against federal jurisdiction. E.g., Shamrock The case for the inverse legal certainty assure fair and prompt recoveries for class Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108– standard is strong. It reconciles the two members with legitimate claims; (2) restore 09 (1941). Although this approach is evi- leading Supreme Court decisions consider- the intent of the Constitution’s framers dently in tension with Congress’ express ing the parties’ proof burdens on a that federal courts hear interstate cases of purpose to expand diversity jurisdiction to remand, McNutt v. Gen’l Motors Accep- national importance; and (3) benefit soci- over class actions, CAFA did not explic- tance Corp., 298 U.S. 178 (1936), and St.

For The Defense n January 2010 n 13 Class Action Fairness Act

Paul Mercury Indem. Co. v. Red Cab Co., 909–12 (S.D. Ind. 2008). Notably, an entity tion back analysis”). Outside the Ninth 303 U.S. 283, 288–89 (1938). It is also the that enjoys dual citizenship under these Circuit, most courts also view the addi- standard used to test diversity jurisdic- doctrines is a citizen of both its state of tion of a new defendant as commencing tion over a complaint initially filed in fed- organization and the state of its principal an action with respect to that defendant, eral court. See Red Cab Co., 303 U.S. at place of business, not solely either one or regardless of state relation-­back law. See, 288–89. Moreover, courts have noted the the other. See, e.g., Johnson v. Advance Am., e.g., Braud v. Transp. Serv. Co., 445 F.3d “peculiar implications of applying the pre- 549 F.3d 932, 935–36 (4th Cir. 2008) (find- 801, 806 (5th Cir. 2006). But the Tenth Cir- ponderance of the evidence standard—a ing no jurisdiction under CAFA when a cuit has expressly held that the addition of standard usually used to weigh competing class consisting exclusively of residents of a defendant commences a new action only a particular state sued a defendant whose if this accords with state relation-­back law. principal place of business was in the same See Prime Care of Northeast Kan., 447 F.3d state even though the defendant was incor- at 1286. Although “commencement” issues The inverse legal porated elsewhere). will fade in importance over time, they cur- When calculating the amount in contro- rently occur with surprising regularity. See, certainty standard… versy, courts have included not only com- e.g., In re Safeco Ins. Co. of Am., F.3d pensatory damages but also, if authorized , 2009 WL 3380355 (7th Cir. 2009). reconciles the two by law: (1) statutory multiple damages, CAFA nowhere requires a properly cer- Brill v. Countrywide Home Loans, Inc., 427 tifiable proposed class or certified class leading Supreme Court F.3d 446, 449 (7th Cir. 2005); (2) punitive as a condition of federal jurisdiction. See damages, Frederico, 507 F.3d at 198–99; 28 U.S.C. §1332(d)(1)(B) (defining “class decisions considering the and (3) attorneys’ fees, id. at 199, Lowder- action” as a civil action filed under Fed. R. milk v. U.S. Bank Nat’l Ass’n, 479 F.3d 994, Civ. P. 23 or similar state rule). Many dis- parties’ proof burdens on 1000 (9th Cir. 2007). The value of injunc- trict courts have denied a remand request tive relief is a defendant’s cost of comply- after refusing to certify a class or after a motion to remand. ing with an . See, e.g., Rodgers plaintiffs have withdrawn the class claims. v. Cent. Locating Serv., Ltd., 412 F. Supp. E.g., Brinston v. Koppers Indus., Inc., 538 2d 1171, 1179–80 (W.D. Wash. 2006). If F. Supp. 2d 969, 974–75 (W.D. Tex. 2008). pieces of evidence—to a situation… where plaintiffs file multiple class actions alleg- However, others have concluded that denial the court has only naked to con- ing the same conduct and injury but over of class certification requires remand. sider.” Lowery v. Ala. Power Co., 483 F.3d different time periods, without any col- E.g., Avritt v. Reliastar Life Ins. Co., 2009 1184, 1209–11 (11th Cir. 2007) (describ- orable basis except to avoid reaching the U.S. Dist. LEXIS 51524, at *3–8, 2009 WL ing the standard as “forcing [a] square peg $5,000,000 amount-­in-­controversy thresh- 1703224, at *1–2 (D. Minn. 2009) (collect- into a round hole”); Meridian Sec. Ins. Co. v. old, a court will likely treat the actions as ing conflicting cases). Although no court of Sadowski, 441 F.3d 536, 541 (7th Cir. 2006) one and retain jurisdiction. See Freeman v. appeals has ruled on the issue, one recently (“Jurisdiction itself is a legal conclusion, a Blue Ridge Paper Prods., 551 F.3d 405 (6th responded to a motion to dismiss for lack consequence of facts rather than a provable Cir. 2008). of subject matter jurisdiction by ordering fact.”) (emphasis in original). Absent the the district court to determine whether Supreme Court’s adoption of the inverse Boundaries of CAFA’s Applicability class certification was appropriate, appar- legal certainty standard, however, defend- CAFA applies only to class actions “com- ently considering the jurisdiction and cer- ants in some will see CAFA menced” on or after its enactment date, tification issues to be intertwined. County removals tested by the less suitable stand- February 18, 2005. 28 U.S.C. §1332(d)(9). of Nassau v. Hotels.com LP, 577 F.3d 89 (2d ards described above. Almost uniformly, courts have consid- Cir. 2009); but cf. College of Dental Surgeons As already noted, diversity exists under ered state law in determining whether a of P.R. v. Conn. Gen’l Life Ins. Co., F.3d CAFA if there is diversity between any subsequent event in a case already pend- , 2009 WL 3384807, at *2–4 (1st Cir. plaintiff and any defendant. CAFA extends ing on February 18, 2005, “relates back” to 2009) (reversing a holding that the case the rule that a corporation is a citizen of the original complaint. If it does, no new must be remanded because the class was both its states of incorporation and prin- action commences; if it does not, com- insufficiently defined; “class composition cipal place of business to “unincorporated mencement occurs. See, e.g., Prime Care (including compliance with the require- associations.” 28 U.S.C. §1332(d)(10). Con- of N.E. Kan., LLC v. Humana Ins. Co., 447 ments of Rule 23) is not the issue at the sistent with Congress’ purpose to harmo- F.3d 1284, 1286 (10th Cir. 2006) (collecting inception of a class action”) (emphasis in nize treatment of unincorporated entities’ cases); but see McAtee v. Capital One, F.S.B., original). Although the Brinston line of citizenship, courts have construed that 479 F.3d 1143, 1146 (9th Cir. 2007) (“for the authority has the better position, given the term to embrace all state-­created, non-­ purpose of determining CAFA’s effective language of §1332(d)(1)(B), this aspect of corporate entities, regardless of their treat- date, an action is commenced under Cali- CAFA will continue to develop as courts ment under state law. Bond v. Veolia Water fornia law when the original complaint in increasingly confront situations in which Indianapolis, LLC, 571 F. Supp. 2d 905, the action is filed, irrespective of any rela- courts have denied class certification.

14 n For The Defense n January 2010 As noted earlier, CAFA treats “mass actions to remain in state court. Courts ant’s alleged conduct is a significant part actions” as class actions for diversity juris- of appeals to date have unanimously held of the alleged conduct of all the [d]efen- diction purposes. A “mass action” is a that the party seeking to invoke an excep- dants, then the significant basis provision civil action that joins the claims for mone- tion, typically a plaintiff, bears the burden is satisfied.” Kaufman, 561 F.3d at 154– tary relief of 100 or more persons and pro- of establishing an exception’s applicabil- 56; accord Kearns, 2005 U.S. Dist. Lexis, poses to jointly try them on the ground ity. E.g., Kaufman v. Allstate N.J. Ins. Co., at *35–38, 2005 WL 3967998, at *10–11 that the claims involve common questions 561 F.3d 144, 153–54 (3d Cir. 2009) (col- (stating that a defendant’s conduct “must of law or fact. 28 U.S.C. §1332(d)(11)(B). lecting cases). be at the very heart of the scheme, and… CAFA requires a mass action to meet the relate to the claims of most or all mem- other requirements of §1332(d)—nota- Local Controversy Exception bly an aggregate $5,000,000 amount in The “local controversy” exception, 28 controversy and minimal diversity—and U.S.C. §1332(d)(4)(A), requires a district provides that jurisdiction exists only over court to decline jurisdiction over a class Courts generally ask, those plaintiffs whose individual claims action in which: (1) more than two-thirds satisfy the traditional $75,000 jurisdic- of the members of “all proposed plain- would that defendant’s tional minimum of §1332(a). The Eleventh tiff classes in the aggregate” are citizens Circuit has reconciled the individual and of the state in which the action was filed; share of the relief “largely aggregate amount-­in-­controversy require- (2) at least one defendant from whom the ments by holding that federal jurisdiction class seeks “significant relief” and whose satisfy the claims of exists over a mass action that satisfies the conduct “forms a significant basis for the aggregate amount at the time of removal, claims asserted” is a citizen of that state; the entire class”? even if subsequent remand of individual (3) the “principal injuries resulting from claims that do not satisfy the individual the alleged conduct or any related conduct amount causes the action to drop below of each defendant” occurred in that state; bers of the class”). Some district courts 100 plaintiffs or the $5,000,000 amount-­ and (4) no other class action asserting the have used a defendant’s local market share in-­controversy. Lowery v. Ala. Power Co., same or similar facts was filed in the previ- as a proxy for “significant basis” conduct 483 F.3d 1184, 1203–07 (11th Cir. 2007); ous three years. if class claims are asserted against multi- cf. Cooper v. R.J. Reynolds Tobacco Co., 586 Courts generally gauge whether relief ple firms in the same industry. E.g., Car- F. Supp. 2d 1312, 1318–22 (M.D. Fla. 2008) sought from a defendant constitutes “signif- uso v. Allstate Ins. Co., 469 F. Supp. 2d 364, (denying remand of 3,400 actions proposed icant relief” by comparing the relief sought 368–70 (E.D. La. 2007). The Third Cir- for joint even though the defendant from that one defendant to the combined re- cuit, however, has rejected this approach intended to sever and try each plaintiff’s lief sought from all defendants. Courts gen- as inappropriately assuming that all of that case individually). erally ask whether that defendant’s share of defendant’s sales are implicated by the class In contrast to Blue Ridge’s aggregation the relief would “largely satisfy the claims of claims. Kaufman, 561 F.3d at 157. of related class actions, discussed above, the entire class.” Kearns v. Ford Motor Co., Finally, regarding “principal injuries,” the Ninth Circuit has refused to aggre- 2005 U.S. Dist. Lexis 41614, at *31–35, 2005 courts generally do not consider injuries gate multiple actions when each alleged WL 3967998, at *9–10 (C.D. Cal. 2005); ac- resulting from interstate or nationwide the same claims against the same de- cord Evans v. Walter Indus., Inc., 449 F.3d conduct, such as a national marketing cam- fendant on behalf of fewer than 100 plain- 1159, 1167–68 (11th Cir. 2006). Although paign, to have occurred in a specific state, tiffs but the plaintiffs did not propose a some district courts have considered a de- even if the action asserts claims only on joint trial. Tanoh v. Dow Chem. Co., 561 fendant’s ability to pay a potential behalf of citizens of that state, because F.3d 945, 953 (9th Cir. 2009). The court in assessing whether relief sought from that this conduct “could be alleged to have cited CAFA’s exclusion from the definition defendant is significant, see, e.g., Robinson injured consumers throughout the coun- of “mass action” “claims [that] are joined v. Cheetah Transp., 2006 U.S. Dist. Lexis try or broadly throughout several states.” upon motion of a defendant,” concluding 10129 at *12, 2006 WL 468820, at *3 (W.D. Kearns, 2005 U.S. Dist. Lexis, at *40, 2005 that the defendant was effectively making La. 2006), the Tenth Circuit has rejected WL 3967998, at *11–12 (quoting S. Rep. No. such a motion by arguing that the actions this approach as unwarranted by the statu- 109-14, at 40–41); accord Mattera v. Clear should be treated as one action for juris- tory language. See Coffey v. Freeport McMo- Channel Communications, Inc., 239 F.R.D. dictional purposes. Id. at 953–56 (citing 28 ran Copper & Gold, F.3d , 2009 U.S. 70, 80–81 (S.D.N.Y. 2006). U.S.C. §1332(d)(11)(B)(ii)(II)). App. Lexis 19996, at *12, 2009 WL 2840508, at *4 (10th Cir. 2009). Home State Exception Exceptions to Expanded Similarly, courts generally gauge whether The “home state” exception, 28 U.S.C. Federal Jurisdiction a defendant’s alleged conduct “forms a sig- §1332(d)(4)(B), requires a district court While expanding diversity jurisdiction, nificant basis for the claims asserted” by to decline jurisdiction over a class action CAFA created several exceptions to diver- comparing that conduct to the alleged con- in which: (1) more than two-thirds of the sity jurisdiction that permit certain class duct of all defendants: “If the local defend- members of “all proposed plaintiff classes

For The Defense n January 2010 n 15 Class Action Fairness Act in the aggregate” are citizens of the state explore which defendants had “the deepest [Securities] Act.” Luther v. Countrywide in which the action was filed; and (2) “the pockets or the greatest culpability,” and in- Home Loans Servicing LP, 533 F.3d 1031, primary defendants” are all citizens of that stead, have defined a “primary defendant” 1034 (9th Cir. 2008). The Seventh Circuit state. simply as one that was sued directly, rather and the Southern District of New York, One enterprising defendant named in than on a theory of vicarious liability or however, have come to the opposite conclu- multiple class actions consolidated in a sin- for indemnification or contribution. See, sion. Katz v. Gerardi, 552 F.3d 558, 561–62 gle district court by the Judicial Panel on e.g., Anthony v. Small Tube Mfg. Corp., 535 (7th Cir. 2009) (rejecting Luther and stat- Multidistrict Litigation sought to avoid the F. Supp. 2d 506, 515–16 (E.D. Pa. 2007); ing that “securities class actions covered by home state exception by arguing that “all Kearns, 2005 U.S. Dist. Lexis, at *21–28, [CAFA] are removable, subject to [CAFA’s] 2005 WL 3967998, at *7–8. No court of ap- exceptions”); N.J. Carpenters Vacation peals has yet addressed this issue. Fund v. HarborView Mortg. Loan Trust 2006-4, 581 F. Supp. 2d 581, 587 (S.D.N.Y. CAFA was drafted Securities and Corporate 2008) (“CAFA overrides the Securities Act’s Governance Exceptions anti-­removal provision”). so as “not to disturb CAFA expressly exempts certain secu- Section 1332(d)(9)(C) requires courts to rities and corporate governance claims decline jurisdiction over claims that solely the carefully crafted from its scope either for commencement “relate[] to the rights, duties (including or removal purposes. U.S.C. 28 §1332(d)(9) fiduciary duties), and obligations relating framework” of jurisdiction (A)–(C); 28 U.S.C. §1453(d)(1)–(3). CAFA to or created by or pursuant to any secu- was drafted so as “not to disturb the care- rity” as defined under the Securities Act. already established over fully crafted framework” of jurisdiction While this might appear to create a broad already established over securities and cor- exception to CAFA jurisdiction, courts have securities and corporate porate governance claims. S. Rep. No. 109- interpreted it to create only a narrow excep- 14, at 50. Section 1332(d)(9)(A) provides tion for claims “grounded in the terms of governance claims. that CAFA’s expansion of diversity juris- the security itself,” as opposed to claims diction “shall not apply to any class action that the security was marketed fraudu- that solely involves a claim concerning a lently. Estate of Pew v. Cardarelli, 527 F.3d proposed plaintiff classes in the aggregate” covered security as defined under §16(f)(3) 25, 31–32 (2d Cir. 2008) (affirming fed- referred to all proposed classes arising of the Securities Act of 1933 and §28(f)(5) eral jurisdiction over fraudulent market- from the same “core nucleus of operative (E) of the Securities Exchange Act of 1934.” ing claims). facts”—that is, all of the consolidated com- Loosely, “covered securities” are those that 28 U.S.C. §1332(d)(9)(B) requires a dis- plaints—regardless of whether an indi- trade on a national securities exchange. trict court to decline jurisdiction over a vidual complaint was subject to federal Controversy related to §1332(d)(9)(A) class action asserting claims relating to jurisdiction. The First Circuit rejected this has arisen because the Securities Act of 1933 the internal affairs or governance of a cor- argument, holding instead that the rel- creates concurrent jurisdiction in state and poration or other business entity under evant aggregation was only of proposed federal courts over claims arising under the the law of the state in which the entity is subclasses within each individual com- act, but it also contains a removal bar, stat- organized. This exception reflects Con- plaint. In re Hannaford Bros. Co. Customer ing that “except as provided… no case aris- gress’ intent to incorporate into CAFA the Data Sec. Breach Litig., 564 F.3d 75, 78–79 ing under this title and brought in any State Supreme Court’s “internal affairs” doc- (1st Cir. 2009). Although this holding con- court of competent jurisdiction shall be trine that “only one State should have the cerned the home state exception, it likely removed to any court of the United States.” authority to regulate a corporation’s inter- also bears on the identical aggregation lan- 15 U.S.C. §77v(a). Since CAFA, by con- nal affairs.” In Re Textainer P’ship Sec. guage in the local controversy exception. trast, allows removal of “any civil action” Litig., 2005 U.S. Dist. Lexis 26711, at *17, Although courts have agreed that the that meets its requirements, district courts *19, 2005 WL 1791559, at *5, *21 (N.D. Cal. home state exception requires all “primary deciding whether to remand a class action 2005) (citing S. Rep. No. 109-14, at 45, and defendants” to be citizens of the state of fil- brought under the Securities Act that also finding state breach of fiduciary relation- ing, e.g., Moua v. Jani-King of Minn., Inc., meets the jurisdictional requirements of ship claims among partnership requires 613 F. Supp. 2d 1103, 1107 n.3 (D. Minn. CAFA—for example, an action concerning court to decline jurisdiction). 2009), interpretation of the phrase “pri- securities that are not traded on a national mary defendant” has varied. Some courts exchange—must find either that removal is State Entity Exception have held that it encompasses “the defend- prohibited under the Securities Act or per- CAFA’s expansion of diversity jurisdiction ants that would be expected to incur most mitted under §1453(b). does not apply to class actions in which of the loss if liability is found.” Robinson, In July 2008, the Ninth Circuit affirmed “the primary defendants are States, State 2006 U.S. Dist. Lexis 82921, at *9–11, 2006 a remand order, holding that CAFA “does officials, or other governmental entities WL 468820, at *2–3 (citing S. Rep. No. 109- not supersede [the] specific bar against against whom the district court may be 14, at 43). Others, however, have declined to removal of cases arising under the ’33 foreclosed from ordering relief.” 28 U.S.C.

16 n For The Defense n January 2010 §1332(d)(5)(A). The Fifth Circuit has held Inc., 2008 WL 4960464, at *1–2 (E.D. Ark. Interlocutory Appeal from that this exception applies only if all pri- 2008). Arguments to consider the “inter- Decision on Motion to Remand mary defendants are states or state actors. ests of justice” separately from the six stat- Section 1453(c)(1) provides that “a court Frazier v. Pioneer Ams. LLC, 455 F.3d 542, utory factors have not been well-­received. of appeals may accept an appeal from an 546 (5th Cir. 2006) (Congress did not intend See Kessler v. Am. Resorts Int’l Holiday Net- order of a district court granting or deny- to create a loophole “whereby plaintiffs can work, Ltd., 2008 U.S. Dist. LEXIS 18975, at ing a motion to remand a class action… if avoid CAFA jurisdiction by naming a state *18–22, 2008 WL 687287, at *6–7 (N.D. Ill. application is made to the court of appeals as a primary defendant in an action largely 2008) (“No case analyzes the ‘interests of not more than 10 days after entry of the targeting non-states”). However, at least one justice’ independently from the statutory order.” The court of appeals must render district court has held that the exception ap- factors.”) (collecting cases). plies when a governmental entity is the only primary defendant in one , Procedural Aspects of Removal despite the presence of non-­governmental and Remand under CAFA In discussing the home defendants in other claims. Hangarter v. CAFA expands the removability of actions Paul Revere Life Ins. Co., 2006 U.S. Dist. subject to CAFA jurisdiction beyond the state exception, “primary Lexis 5295, at *8, 2006 WL 213834, at *2–3 provisions of 28 U.S.C. §1446, the general (N.D. Cal. 2006) (finding that a state en- federal removal statute, by: (1) lifting the defendant” does not have tity was the “primary defendant” because one-year time limit on removal; (2) per- it was targeted for “substantial relief,” was mitting removal by a defendant that is a cit- a settled definition. the only defendant that could provide relief izen of the state of filing; and (3) permitting requested on one claim, and would be liable removal by one defendant without the con- to the entire class). Hence, as noted above sent of others. 28 U.S.C. §1453(b). a decision on an accepted appeal “not later in connection with the home state excep- Two courts of appeals have held that than 60 days after the date on which such tion, “primary defendant” does not have a a defendant is not a “de- appeal was filed.” 28 U.S.C. §1453(c)(2). settled definition. fendant” entitled to remove under §1446. Courts have interpreted these provi- Progressive West Ins. Co. v. Preciado, 479 sions to create a discretionary appeal pro- “Interests of Justice” Exception F.3d 1014, 1017–18 (9th Cir. 2007) (stat- cedure governed by Fed. R. App. P. 5. E.g., CAFA’s “interests of justice” exception per- ing that a counterclaim defendant that was Hart v. FedEx Ground Package Sys. Inc., 457 mits, but does not require, a district court a plaintiff in the original claims may not F.3d 675, 678–79 (7th Cir. 2006). Under this to decline jurisdiction over a class action if remove under 28 U.S.C. §1446); Palisades procedure, a would-be appellant files an “the primary defendants” and more than Collections, LLC v. Shorts, 552 F.3d 327, 334 application for permission to appeal, not a one-third, but fewer than two-thirds, of (4th Cir. 2008) (applying the same rule to notice of appeal, with the court of appeals, the proposed class members are citizens a counterclaim defendant that was not a rather than the district court. Id.; cf. Fed. of the state in which the action was filed, plaintiff in the original claims). At least R. App. P. 5. The 60-day deadline for resolv- after considering whether: (1) the claims one district court, however, has rejected ing the appeal runs from the date on which involve national or interstate interest; (2) Palisades. Deutsche Bank Nat’l Trust Co. the court of appeals grants the application, they will be governed by laws of the state v. Weickert, 2009 U.S. Dist. Lexis 56843, rather than the date on which the appel- of filing; (3) the action has been pled in a at *9–10, 2009 WL 1954505, at *3–4 (N.D. lant files it. Id.; but see Patterson v. Dean manner seeking to avoid federal jurisdic- Ohio 2009) (“Concluding that a Morris, L.L.P., 444 F.3d 365, 370–71 (5th tion; (4) the state forum has a nexus with that otherwise qualifies under CAFA is not Cir. 2006) (Garza, J., dissenting) (arguing class members, the alleged harm, or the de- of national importance merely because the that the 60-day period runs from the date fendants; (5) the number of class members class-­action plaintiffs brought the claim of application). One court has articulated that are citizens of the state of filing is sub- via rather than an original the criteria for deciding whether to accept stantially larger than the number that are complaint contravenes clear congressional such an appeal, namely whether the CAFA citizens of any other state, and the class intent” to expand federal jurisdiction.) question presented is important, unsettled, members’ citizenship is dispersed among a Jurisdictional is not avail- consequential to the resolution of the case, substantial number of states; and (6) in the able as of right following a CAFA removal. likely to evade review absent interlocutory three years prior, one or more class actions E.g., Lowery, 483 F.3d at 1215–18 (disallow- appeal and likely to recur; whether the dis- asserting the same or similar claims was ing post-­removal jurisdictional discovery trict court’s order is sufficiently final to per- filed. 28 U.S.C. §1332(d)(3). generally). One court of appeals has held mit review; and the balance of the harms. In one instance in which three factors that jurisdictional discovery is particu- College of Dental Surgeons of P.R. v. Conn. supported remand and three supported larly inappropriate because CAFA lifts the Gen’l Life Ins. Co., F.3d , 2009 WL retention, the court found that the sixth one-year time limit on removal, so remand 3384807, at *2–4 (1st Cir. 2009). factor, when it pointed to federal juris- pending development of jurisdictional facts diction, should “tip the scales” in favor of does not result in prejudice to the parties. Safeguards such jurisdiction. Webb v. Riceland Foods, Abrego Abrego, 443 F.3d at 691. CAFA includes a variety of substantive pro-

For The Defense n January 2010 n 17 Class Action Fairness Act tections for class members in connection Third, 28 U.S.C. §1714 forbids approval elected to include federal claims in suits with settlements. Specifically, CAFA places of a settlement “that provides for the pay- which they previously would have omitted restrictions on coupon and net loss settle- ment of greater sums to some class mem- if, in light of CAFA, they now viewed re- ments, forbids geographically discrimi- bers than to others solely on the basis that moval as likely. natory settlements, and requires notice to the class members to whom the greater The FJC report also noted an increase in regulatory officials. sums are to be paid are located in closer diversity-­based class actions. Id. at 1. The First, 28 U.S.C. §1712(e) forbids approval geographic proximity to the court.” No number of these actions originally filed in of a coupon settlement unless a court con- court has yet interpreted this provision. federal courts nearly tripled, from an aver- ducts a hearing and issues a written find- Finally, 28 U.S.C. §1715 requires that age of 11.9 per month pre-CAFA, to 34.5 per within 10 days after a proposed settlement is month post-CAFA, suggesting that CAFA filed in court, each participating defendant has affected plaintiffs’ forum choices. Id. at serve settlement-­related papers—includ- 2, 7. Removals increased in the immediate Jurisdictional discovery ing the proposed settlement, notice papers, post-CAFA period, but have been decreas- pleadings and any final judgments—on: (1) ing since 2005, and in the last months of is not available as the United States Attorney General, or, with the study period, were at levels similar respect to a depository institution, the pri- to before CAFA. Id. The types of actions of right following a mary federal regulatory official; and (2) the accounting for the overall increase in diver- primary regulatory official, or, if none ex- sity class actions—both filings and remov- CAFA removal. ists, the state attorney general, of each state als—were contract, consumer protection/ in which a class member resides. See Gates v. fraud, and property damage torts. Id. at 2, Rohm & Haas Co., 248 F.R.D. 434 (E.D. Pa. 5. By contrast, tort personal injury cases ing that the proposed settlement is “fair, 2008) (approving notices as sufficient). have not increased under CAFA, and in fact reasonable, and adequate for class mem- represented a smaller proportion of all class bers.” If counsel’s fees in such a settlement CAFA’s Impact actions in 2007 than in 2001. Id. are based on coupon values, then they The principal source of information about The five-year experience under CAFA must be based only on the value of actu- CAFA’s impact is a periodic report of the suggests that the statute has enjoyed some ally redeemed coupons, although the lode- Federal Judicial Center (FJC) to the Judicial success in achieving its principal aims, star method of awarding fees based on time Conference Advisory Committee on Civil thanks both to its statutory language and reasonably expended is also permitted. 28 Rules, which monitors class action activity judicial interpretation. The statute’s con- U.S.C. §1712(a)–(b). in the federal courts. The most recent is the straints on settlement provisions and class Although §1712 defines a “coupon set- Fourth Interim Report of April 2008, which counsel fees resulting from settlements, tlement” as a settlement that “provides analyzed class action filings and removals aimed at ensuring fair recoveries for class for a recovery of coupons to a class mem- from July 1, 2001, through June 30, 2007. members with legitimate claims, are rel- ber,” it does not define “coupon.” Courts Emery G. Lee III & Thomas E. Willging, atively clear and appear to have been dil- have generally interpreted the term as The Impact of the Class Action Fairness igently applied by the courts. Further, requiring class members to spend addi- Act of 2005 on the Federal Courts (Fed- CAFA’s expansion of diversity jurisdiction tional money to realize the benefit. See, eral Judicial Center April 2008), http://www. appears to have increased the number of di- e.g., Perez v. Asurion Corp., 2007 U.S. Dist. fjc.gov/public/pdf.nsf/lookup/cafa0408.pdf/$file/ versity class actions—particularly original Lexis 66931, at *5–6, 2007 WL 2591180, cafa0408.pdf. As there is no comparable filings—heard by federal courts. Many of at *2 (S.D. Fla. 2007) (finding that phone study of class action data from the state these cases have been the “interstate cases cards and vouchers did not constitute cou- courts, the FJC findings should be inter- of national importance” that CAFA’s propo- pons); Browning v. YahooA Inc., 2007 WL preted with that in mind. nents wished the federal courts to hear. The 4105971, at *5 (N.D. Cal. 2007) (finding Comparing January–June 2007 with principal impediment to full achievement that a credit-­monitoring product did not July–December 2001, the FJC report found of CAFA’s aims has been occasional judicial constitute a coupon, even though it was is a 72 percent increase in class action ac- reluctance to interpret diversity jurisdiction non-­transferable and would renew auto- tivity—defined as original filings or re- expansively under the act. See, e.g., Han- matically at a cost unless cancelled). movals in which class action allegations garter, 2006 WL 213834, at *3 (interpret- Second, 28 U.S.C. §1713 forbids approval were raised at any stage—in the 88 district ing state entity exception to CAFA broadly of a “settlement under which any class courts studied. Id. at 1. Interestingly, much because “settled law” requires construing member is obligated to pay sums to class of this increase involved federal question diversity statutes in favor of declining juris- counsel that would result in a net loss to the suits, particularly suits under the Fair La- diction); Strawn v. AT&T Mobility LLC, 530 class member,” unless “the court makes a bor Standards Act (FLSA), which increased F.3d 293, 297 (4th Cir. 2008) (“Statements written finding that nonmonetary benefits 228 percent, from 24.6 percent to 46.9 per- in CAFA’s legislative history, standing alone, to the class member substantially outweigh cent of all class actions. Id. at 3–4. While are [an] insufficient basis” to conclude that the monetary loss.” No court has yet inter- CAFA would not directly increase federal party seeking remand bears burden of es- preted this provision. question filings, class counsel may have tablishing lack of federal jurisdiction.).

18 n For The Defense n January 2010