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Archive for the ‘CAFA Requirements’ Category

Earlier today, the Supreme Court granted cert in Dart Cherokee Basin Operating Company, LLC v. Owens, No. 13-719, in which it will take up the contours of the standard for providing factual support in a notice of removal under the Class Action Fairness Act of 2005 (CAFA).  Specifically, the issue presented is as follows:

Whether a defendant seeking removal to federal court is required to include evidence supporting federal jurisdiction in the notice of removal, or is alleging the required “short and plain statement of the grounds for removal” enough?

This is the third CAFA removal case that the Court has accepted in as many years.  During the October 2012 term, the Court decided Standard Fire Ins. Co. v Knowles, 133 S. Ct. 1345 (2013), in which it held that a class representative may not avoid CAFA jurisdiction by stipulating to a recovery of damages of less than $5,000,000 on behalf of members of the proposed class.  Earlier in the current term, the Court decided Mississippi ex rel. Jim Hood v. AU Optronics Corp., Case No. 12-1036 (U.S. Jan. 14, 2014), holding that a parens patriae action brought by a state attorney general on behalf of Mississippi residents was not a “mass action” subject to CAFA.

 

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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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If you’re prosecuting or defending a class action or are interested in class action developments (and I’m not sure why on Earth you would be reading this otherwise) you’ll want to know about a great new ABA publication on the Class Action Fairness Act of 2005 (CAFA).  The Class Action Fairness Act, Law and Strategy, is a book of collected works written by experts on both sides of the bar and deftly edited by former ABA CADS Committee Chair Gregory C. Cook.  Those familiar with CADS (the Class Actions and Derivative Suits Committee of the ABA Section of Litigation) will recognize the names of many of the knowledgeable contributors.

The book covers nearly every CAFA-related topic conceivable, from the history of CAFA to the provisions expanding federal diversity jurisdiction in class actions and the provisions regulating federal class action settlements.  It can be used as a reference guide for the basic requirements of CAFA, but it also provides practical strategy tips for both plaintiffs and defendants in dealing with common and not-so-common CAFA issues.  Here is a summary of the Table of Contents:

  • Chapter 1 – Introduction and Overview
  • Chapter 2 – CAFA in Congress: The Eight-Year Struggle
  • Chapter 3 – Hey CAFA, Is that a Class Action?
  • Chapter 4 – The Amount in Controversy under CAFA: Have You Got What It Takes for Federal Court?
  • Chapter 5 – CAFA’s Numerosity Requirement, or How to Count from 1 to 100
  • Chapter 6 – Basics of MInimal Diversity in CAFA
  • Chapter 7 – Welcome to the Jungle: CAFA Exceptions
  • Chapter 8 – How CAFA Expands Federal Jurisdiction to Include Certain Mass Actions
  • Chapter 9 – Advanced Procedural and Strategic Considerations on Removal under CAFA
  • Chapter 10 – CAFA-Related Appeals
  • Chapter 11 – CAFA Settlement Provisions

Be sure to click the link on the title of the book, above, for information about how to get your copy.  If you don’t have it, chances are that your opponent will!

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The United States Supreme Court has granted certiorari to decide whether a plaintiff’s stipulation to seek less than $5 million in damages can deprive the federal courts of jurisdiction to hear the case under the Class Action Fairness Act of 2005 (“CAFA”). The specific question presented in Standard fire Insurance Company v. Knowles is as follows:

Last Term, this Court held that in a putative class action “the mere proposal of a class … could not bind persons who were not parties.” Smith v. Bayer Corp., 131 S. Ct. 2368, 2382 (2011). In light of that holding, the question presented is:

When a named plaintiff attempts to defeat a defendant’s right of removal under the Class Action Fairness Act of 2005 by filing with a class action complaint a “stipulation” that attempts to limit the damages he “seeks” for the absent putative class members to less than the $5 million threshold for federal jurisdiction, and the defendant establishes that the actual amount in controversy, absent the “stipulation,” exceeds $5 million, is the “stipulation” binding on absent class members so as to destroy federal jurisdiction?

For copies of the cert petition and other briefs, and the opinion below, see the SCOTUS Blog page for the case:

http://www.scotusblog.com/case-files/cases/the-standard-fire-insurance-co-v-knowles/

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Earlier today, the Tenth Circuit joined the majority of Circuit Courts of Appeals in holding that a plaintiff cannot conclusively avoid federal removal jurisdiction under the Class Action Fairness Act of 2005 (CAFA) by including in the complaint a statement of intention not to seek more than $4,999,999.99 in damages on behalf of the putative class.  In Frederick v. Hartford Underwriters Insurance Company, No. 12-1161 (10th Cir. June 28, 2012) the Tenth Circuit followed decisions from the First, Second, Fourth, Sixth, Seventh, Eighth and Eleventh Circuits in holding that a Defendant may support jurisdiction by showing by a preponderance of the evidence that the amount in controversy exceeds $5 million, even if the plaintiff expressly pleads a lesser amount.  It rejected a more stringent “legal certainty” standard, which has been applied by the Ninth and Third Circuits.

The Frederick decision means that plaintiffs cannot foreclose federal jurisdiction in class actions through creative pleading in the Tenth Circuit.  However, the burden is still on the defendant to prove as a matter of fact that the amount at stake in the case exceeds $5 million.  Therefore, it also highlights the need for defense counsel to gather, plead, and be prepared to prove specific facts showing the amount at stake in the case. 

It is always important to remember that proving the amount in controversy does not require the defendant to prove the damages that are likely to be awarded against it in the case (of course most defendants would say that this amount is zero).  Instead, it requires the defendant to establish the highest amount that the plaintiff class could conceivably win based on the legal claims presented, the relief sought (both damages and other relief sought expressly and damages that could legally flow from the claims presented), and the maximum potential value that the plaintiff could reasonably put on that relief.  The preponderance standard requires the defendant to prove facts that would cause more than $5 million to be awarded if the plaintiff proves the claims and potential theories of damages that flow from those claims.

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Alison Frankel, whose On the Case blog is featured in the Thomson Reuters News and Insight section, posted this interesting article today discussing a novel alternative to the class action as a device to resolve mass disputes.  The procedural device in question is Article 77 of the New York State Code, which allows a trustee to seek court approval of decisions relating to a trust.  Frankel’s article today offers an update on proceedings brought under Article 77 seeking approval of an agreement between institutional investors and the trustee of hundreds of residential mortgage-securitization trusts, which had created in order to allow banks to raise funds in order to offer residential mortgages to consumers.  If approved, the settlement would resolve the claims of not only the institutional investors who reached the settlement with the trustee, but also potential claims of other investors in the trusts.  Thus, Article 77 essentially provides a means of creating a global settlement of all investor’s claims, without allowing the opportunity to opt out, which would have been available if the agreement had been presented as a proposed class action settlement. 

Frankel has done an excellent job of summarizing the issues in the case as well as today’s Second Circuit Court of Appeals decision holding that the federal courts lack jurisdiction over the case under the Class Action Fairness Act (CAFA) as a result of the securities exception in 28 U.S.C. §§ 1332(d)(9)(C) and 1453(d)(3), so I won’t re-summarize the article here but simply commend it to your reading.  The case is BlackRock Fin. Mgmt. Inc. v. The Segregated Account of Ambac Assur. Corp., 11-5309-cv(L), (2d Cir., Feb. 27, 2012).

Although the use of Article 77 to create a binding settlement that does not require an opportunity to opt out may be a novel strategy, the case highlights an often-overlooked option that may be available in any class action litigation involving a trust, benefits plan, or other fund with a custodian or trustee.  This would include certain banking and securities cases or class actions filed under the Employee Retirement Income Security Act (ERISA) against a party other than the trustee.  Rather than having to negotiate with class action lawyers, it may be possible in these contexts to come to a global resolution of a dispute by negotiating with the trustee and then seeking court approval of that agreement.  Even if a class action is pending, resolution of the dispute with the trustee may provide grounds to defeat class certification on superiority grounds, since a settlement with a party having a fiduciary responsibility to the beneficiaries of the fund can be an adequate and significantly more efficient means of resolving any dispute.

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Rita Robinson, who writes the Boomer Consumer blog for the Seattle Post-Intelligencer, posted an entry titled Attorneys general oppose DirectBuy’s class-action lawsuit settlement discussing an amicus brief filed by Attorneys General from 34 states, Puerto Rico, and the District of Columbia objecting to a proposed settlement in a consumer fraud class action brought against online wholesale club DirectBuy, Inc. in the U.S. District Court for the District of Connecticut.

A copy of the brief is available for download here courtesy of the Washington Attorney General’s website.   The essential theory of the case was that the defendant “represented that paid DirectBuy memberships entitle customers to purchase goods from manufacturers and suppliers at actual cost when, in fact, Defendants receive kick-backs from the suppliers and manufacturers out of the purchase price paid by DirectBuy members — resulting in members paying more than the actual cost for such goods.”  Amicus Brief at 4.   The 34-page brief raises a variety of objections to the settlement, but the primary beef is that only benefit to claimants was membership extensions or discounts on future memberships, which they argue amounts to a “coupon” settlement.

The case illustrates the practical impact of a key but often overlooked component of the Class Action Fairness Act of 2005, the requirement that “appropriate” government officials be given notice of a proposed class action settlement in federal court.   This is a topic that was the subject of a series of CAB posts in 2008, which you can access at the links below:

As noted in June 25, 2008 entry, although CAFA requires that notice be given to state and federal officials, it is rare for those officials to take any action to object to the settlement after they receive it.  One exception, as exemplified by the DirectBuy case, is a coupon settlement.  (The other thing that can get officials’ attention is where the release in a proposed settlement purports to bind state officials, such as a clause that purports to release parens patriae claims by the state.)

Although CAFA requires notice to state officials, it does not give them any power to prevent the settlement.  In fact, state officials do not even have the express power to formally object to a settlement, which is why when they do act, it is usually in the form of an amicus (friend of the court) brief.  Ultimately, approval or disapproval of the settlement is still up to the trial court.  However, it should go without saying that if you’re a party or attorney seeking approval of a class action settlement, it’s much better not to have government officials filing an amicus brief critical of your settlement.

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