Archive for April 9th, 2008

One misconception that many lawyers have (and admittedly I was one of them until recently) is that the Official Notice requirement imposed under the Class Action Fairness Act (CAFA), codified at 28 U.S.C. 1715, applies only to cases removed under the CAFA’s jurisdictional provisions, codified as part of 28 U.S.C. 1332.  However, the notification requirements of section 1715, as well as the restrictions on coupon settlements, protections against loss to class members, and the restriction against geographic discrimination in sections 1712-14 apply to

any civil action filed in a district court of the United States under rule 23 of the Federal Rules of Civil Procedure or any civil action that is removed to a district court of the United States that was originally filed under a State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representatives as a class action.

28 U.S.C. 1711 (emphasis added).  Therefore, it does not matter whether the case was originally filed in state court and removed or if it was filed in federal court originally by the plaintiff.  If it was filed after the enactment of CAFA, appropriate state and federal officials must be notified.  (See my earlier entry discussing the notification requirement more generally here).

Another requirement to keep in mind is that within 10 days of the date that a proposed settlement is filed with the federal court, notice must be given to the “appropriate” state official in “each State in which a class member resides”  28 U.S.C. 1715(b).  The plain language of this provision arguably requires the defendant to locate the present location of every member of the class–even in a statewide class action in which all class members lived in the same state during the times at issue in the lawsuit–or face the prospect of having to send notice to state officials in all 50 states and in the District of Columbia.  But does a defendant truly risk the possibility that some class members may to choose not to be bound simply because they moved to other states in which the state attorneys general did not receive notice?  Legislative history suggests no.  According to the Senate Judiciary Committee Report:

The Committee wishes to make clear that this provision is intended to address situations in which defendants have simply defaulted on their notification obligations under this provision; it is not intended to allow settlement class members to walk away from an approved settlement based on a technical noncompliance (e.g., notification of the wrong person, failure of the official to receive notice that was sent), particularly where good faith efforts to comply occurred. In particular, the Committee wishes to note that where the appropriate officials received notification of a proposed settlement from at least one defendant, section 1715(e) should not be operative. New subsection 1715(e)(2) specifically states that a class member may not refuse to comply with a settlement if the notice was directed to the appropriate federal official and to the state attorney general or the primary licensing authority. This provision reflects the overall intent of section 1715 that a settlement should not be undermined because of a defendant’s innocent error about which federal or state official should have received the required notice in a particular case.

Senate Report 109-014 – THE CLASS ACTION FAIRNESS ACT OF 2005.

Although this statement reflects an intent not to cause settlements to be voidable by class members simply because the defendant committed an innocent mistake regarding notification of officials, it does not speak directly to the issue of neglecting to notifiy a particular state’s official.  Until this issue is tested in the courts, being overinclusive in sending official notice may be the only way to ensure protection against collateral attacks of federal court class actions settlements.

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A story at Forbes.com provides a nice analysis of the possibility that the well-publicized Deutsch Telekom trial could open the door to more class action litigation in Europe.   http://www.forbes.com/markets/2008/04/08/deutsche-telecom-claim-markets-equity-cx_jm_0304markets20.html.  The trial, which began on Monday, involves claims of shareholder fraud brought on behalf of approximately 16000 shareholders. 

As the Forbes article points out, the case became possible due to a recent change in German law that allows mass claims to be pursued in certain types of cases.  This change comes as other EU countries are considering class action reforms (See my April 1 entry here).  The article also remarks that the EU is considering the possibility of adopting a uniform class action law.  Aside from the opt-in vs. opt-out distinction discussed in my April 1 entry, the article points out another key aspect of the law of many European countries that my provide a barrier to expansion of class actions in Europe is the use of the “loser pays” rule for awarding attorneys fees.  This differs from the “American rule” in which both parties pay their own fees and costs absent statutory authority to the contrary.

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