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Archive for the ‘Class Action Fairness Act’ Category

The U.S. Supreme Court issued its first class-action-related decision of the 2013-14 term today, or more precisely, its first non-mass-action-related decision of the term.  In Mississippi ex rel. Jim Hood v. AU Optronics Corp., Case No. 12-1036 (U.S. Jan. 14, 2014), the Court held that a parens patriae action brought by the Mississippi attorney general on behalf of Missouri citizens was not a “mass action” subject to the Class Action Fairness Act of 2005.  My partner Casie Collignon has a more detailed write-up on the decision at the BakerHostetler blog Class Action Lawsuit Defense.

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One question that defense practitioners often face when preparing a notice of removal under the Class Action Fairness Act (CAFA) is whether they must attach affidavits or other proof of the facts submitted in support of removal at the time the removal notice is filed, or whether the submission of proof can wait until removal jurisdiction is challenged by the plaintiff.

A removal notice is a pleading that requires factual allegations but should not require verification or proof of the facts alleged, and this is how most federal courts interpret the removal statute.  See, e.g.Meridian Security Insurance Co. v. Sadowski, 441 F.3d 536, 539-40 (7th Cir. 2006) (“If [the] allegations [by the party asserting jurisdiction] of jurisdictional facts are challenged by his adversary in any appropriate manner, he must support them by competent proof.”) (quoting McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189 (1936)).  However, some district courts have ordered remand due to a defendant’s failure to attach affidavits or other support for those allegations to the removal notice itself.  Recently, in Dart Cherokee Basin Operating Company, LLC v. Owens, the Tenth Circuit Court of Appeals refused to grant review of a decision by the U.S. District Court for the District of Kansas remanding a class action for this reason.  No. 13-603 (10th Cir. Sept. 17, 2013) (refusing to grant review of Owens v. Dart Cherokee Basin Operating Co., LLC, No. 12-4157-JAR (D. Kan. May 21, 2013)).  Because the votes on whether to accept review were evenly divided, the petition for review was denied.

Judge Hartz wrote a sharp dissent to the order denying review, stating “I think it is important that this court inform the district courts and the bar of this circuit that a defendant seeking removal under CAFA need only allege the jurisdictional amount in its notice of removal and must prove that amount only if the plaintiff challenges the allegation.”  Nonetheless, he recognized the reality that:

After today’s decision any diligent attorney (and one can assume that an attorney representing a defendant in a case involving at least $5 million—the threshold for removal under CAFA—would have substantial incentive to be diligent) would submit to the evidentiary burden rather than take a chance on remand to state court; if so, the issue will not arise again.

Judge Hartz went on to admonish other members of the court for not being more willing to take on issues relating to CAFA removal jurisdiction, stating that

I would add a few words about our discretionary jurisdiction to review removals under CAFA. CAFA is a newcomer to the scene and its intricacies are unfamiliar to many of us.  It will always be tempting for very busy judges to deny review of a knotty matter that requires a decision in short order.  But we have an obligation to provide clarity in this important area of the law.

Sadly, just as it is tempting for busy appellate judges to avoid having to deal with the intricacies of CAFA jurisdiction, it is tempting for many federal trial judges to look for any excuse to help clear their civil dockets by remanding removed cases.  This is of course not true of all federal trial judges, but it happens enough that the appellate courts need to step in from time to time to avoid the law from developing in a way that thwarts CAFA’s legislative purpose of expanding the availability of a federal forum to class action defendants.  However, until the appellate courts decide to heed Judge Hartz’s plea to take on more of these issues, the state of the law is likely to continue to be slanted in favor of remand whenever there is the slighest doubt.

In the meantime, as Judge Hartz points out, a diligent defense attorney in the Tenth Circuit will need to submit evidentiary support along with a removal notice.  The same is true of any other Circuit where the issue has not been resolved definitively by the Court of Appeals.  If the law of the Circuit is clear that factual information need not be attached to the removal notice, then there can be strategic and cost-saving advantages to not attaching the information.  However, if the law is not clear, then as the Dart Cherokee Basin case illustrates, a “diligent” attorney should take the safe approach and attach supporting affidavits to the removal notice.

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Editor’s Note: The following guest post was authored by Sara Collins, contributor to the consumer finance website, NerdWallet.  The views expressed in Sara’s article are her own.  Although those of us who tend to represent defendants in consumer class actions may not agree with all of Sara’s views on the benefits of class actions, we can certainly learn something from reading a consumer advocate’s views on the subject.  The article also provides an easy-to-follow primer on how class actions work.  Many thanks to Sara for her contribution. 

Class Actions – Do They Actually Help Consumers? 

By Sara Collins

Consumers in the United States are sometimes victims of bad business behavior. These behaviors cover a huge range of bad acts, particularly in the field of securities. Class actions allow consumers to band together and fight against bad business. As such, they have a number of benefits for consumers and are quite helpful in evening the corporation versus consumer playing field.

What are Consumer Class Actions?

A consumer class action is simply a lawsuit which takes place in a federal or state court. The case is brought by one or a small handful of individuals, acting as representatives for a larger group of consumers, known as the class. Typically the case is seeking damages on behalf of the named individuals in addition to the entire class.

Why is a Consumer Class Action Necessary?

Traditionally, class actions are used to combine small-dollar claims for a large number of people. One small claim is generally too small for a cost-effective suit. Consumer class actions offer a helpful alternative, justifying the litigation expenses and immensely improving the consumer’s odds of success, particularly when it comes to larger corporations.

How do Consumer Class Actions Work?

When a class action is first brought, the court initially decides whether it is a proper class action. This is a process known as class certification. The parties then work towards a trial, though settlement negotiations can take place at any point.  If the parties decide to settle the case, the court must approve the settlement and then order notice given to class action members.

Do Class Actions Work?

They definitely do. Billions of dollars are given back to the public every year which come from consumer class actions. In most cases, the money is given directly to the victims of the suit, rather than going into the hands of the government, lawyers or other non-consumers.

What Long-Term Effects do Consumer Class Actions Cause?

Class actions help to make bad business practices unprofitable. Class actions aggregate the power of isolated consumers, allowing class actions to compete against corporate behemoths. It levels the playing field, forcing businesses to operate in honest and trustworthy ways.  Markets in other countries where class actions are not allowed often suffer from corporate abuses like stock manipulation, insider trading and other problems.

Do Lawyers Benefit Excessively From Consumer Class Actions?

One argument used by businesses to protest the prevalence of consumer class actions is to claim that the lawyers benefit excessively from the cases. In fact, attorney fees in class action cases average just between 20 and 30 percent of the amount recovered. In stark comparison, personal injury lawyers typically reap 35 to 50 percent of their case winnings. Clearly businesses are using false arguments in an attempt to eliminate class actions and thus damages sought against them.

What is the Class Action Fairness Act of 2005?

The Class Action Fairness Act of 2005 (CAFA) was enacted by Congress in order to curb abuse of class action suits in state courts. Evidence showed that many class actions were being filed which benefited the counsel, rather than the consumers. Additionally, many cases were filed in courts which showed prejudice against business defendants, a problematic issue.

CAFA was enacted to extend federal jurisdiction to these state courts in order to diminish such abuses. CAFA has had a mild success and while most benefits are for businesses, some benefits are extended to consumers. Primarily, the legislation limits the monetary benefits for the attorneys. This ensures that money won in settlements goes to the members of the class, rather than the plaintiff counsel.

Consumer class actions are needed to ensure the financial safety of consumers, particularly in the realm of securities. Class actions allow consumers to band together, combining resources in order to sue a corporation as a singular entity. In turn, all consumers reap the benefits of the settlement, helping to prevent future bad behavior from the corporation in question. Class actions undoubtedly have a positive effect on the world of consumers and it is vital they stay legal for the foreseeable future.

Sara Collins is a writer for NerdWallet, a personal finance site dedicated to helping consumers learn about new ways to save money.

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The Supreme Court issued its first-ever decision interpreting the Class Action Fairness Act (CAFA) today, and its holding strengthens defendants’ right to a federal forum in class actions. 

The question presented in Standard Fire Insurance Co. v. Knowles, No. 11-1450, slip op. (U.S., Mar. 19, 2012) was a simple one: can a plaintiff avoid federal jurisdiction under CAFA by stipulating to less than $5 million in damages on behalf of the putative class?  The Court’s unanimous answer was no, and its reasoning is also simple:

Stipulations must be binding . . . [and] a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified.

Slip op. at 3-4.  

Does Standard Fire mean the end of any debate about the federal courts as a forum for class actions?  Probably not.  Justice Breyer’s well-reasoned opinion makes the issue sound like a no-brainer, but this is an issue that had been far from settled in the lower courts.  The fact that the Supreme Court had to intervene on this issue is in part a symptom of a lingering antagonism by many lower federal court judges toward diversity jurisdiction.  The ruling is unlikely to change the predisposition of some federal judges to look for ways to clear their dockets by remanding diversity cases to the state courts.  Although the effectiveness of this particular method for avoiding CAFA jurisdiction is now settled in defendants’ favor, that is not to say that other tactics for avoiding federal jurisdiction in class actions won’t succeed in the future.

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The Supreme Court is set to hear oral argument Monday in the case of Standard Fire Insurance Co. v. Knowles.  At issue is whether a plaintiff can avoid federal removal jurisdiction under the Class Action Fairness Act (CAFA) by stipulating to a recovery of less than $5 million on behalf of  a would-be class.  Debra Lyn Bassett has a good preview of the argument over at SCOTUSblog:

http://www.scotusblog.com/2013/01/argument-preview-avoiding-removal-by-limiting-damages/

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Having been focused on several other speaking and writing projects recently (in addition to my day job), it’s taken longer than I had hoped to comment on several recent class-action-related decisions by the federal circuit courts of appeals.  Here’s a brief summary of three recent decisions of note:

Washington State v. Chimei Innolux Corp., No. 11-16862 (9th Cir. Oct. 3, 2011) – joining the Fourth Circuit in holding that a parens patriae action brought by state attorneys general or other state officials for the benefit of the state’s citizens is not a “class action” for the purposes of removal under the Class Action Fairness Act (CAFA).

Klier v. Elf Atochem N. Am., Inc., No. 10-20305 (5th Cir., Sept 27, 2011) – holding in the absence of an express provision in the settlement agreement to the contrary that unclaimed funds should be distributed pro rata to class members who participated in the settlement as opposed to being given to charity as a cy pres distribution.  Take note of the concurrence by Judge Edith H. Jones, which makes a strong argument that in the absence of any agreement to the contrary or express waiver of the right to recover unclaimed funds, the equities favor returning those funds to the defendant rather than paying them to the class or distributing them to charity.

Esurance Ins. Co. v. Keeling, No. 11-8018 (7th Cir., Sept. 26, 2011) – holding that when punitive damages are at issue, the correct standard is whether it would be “legally impossible” for the plaintiff to recover an amount of punitive damages that, when combined with the amount of compensatory damages sought, would exceed the $5 million amount in controversy threshold under CAFA, but concluding that it was not legally impossible under Illinois law, even though it was unlikely, that $4.4 million in punitive damages could be awarded in a case where the compensatory damages were slightly more than $600,000.

A great resource for more timely commentary and analysis on recent class action decision in the federal courts of appeals is Alison Frankel’s blog On the Case.

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Earlier today, the Supreme Court issued its third of four class action-related decisions for the October 2010 term.  In Smith v. Bayer Corp., No. 09-1205, the Court held that a federal court exceeded its authority when it issued an injunction preventing a state court from considering whether to certify a class on claims in which the federal court had previously denied class certification. 

Justice Kagan’s opinion involves a fairly straightforward academic analysis of the “re-litigation exception” to the federal Anti-injunction Act and principles of issue and claim preclusion: where a state court applies a different class certification standard than the standard applicable under FRCP 23, the issue decided in the federal action on class certification is not the same as the one to be decided in the state court proceeding.

However, the practical impact of the decision is that a plaintiffs’ lawyer who is unsuccessful in seeking class certification in federal court can try again in a state that applies a different class certification standard.  Of course, the successive class action is potentially subject to removal under the Class Action Fairness Act (CAFA), but if one of the exceptions to CAFA applies, such as the home state or local controversy exception, the Court’s decision paves the way for multiple bites at the class certification apple.

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