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Posts Tagged ‘diversity jurisdiction’

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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One of the more significant issues relating to the Class Action Fairness Act of 2005 (CAFA) that has percolating through the federal courts over the past few years is whether parens patriae actions brought by state attorneys’ general seeking to recover damages for their citizens are “class actions” that can be removed to federal court.  On Friday, a panel of the Fourth Circuit Court of Appeals issued a 2-1 decision holding that parens patriae actions are not class actions subject to removal under CAFA.  West Virginia v. CVS Pharmacy, Inc., No. 11-1251 (4th Cir. May 20, 2011) (to be published).

CAFA Law Blog has been covering this issue extensively in recent months, and I expect they will have an entertaining post about the case in the coming days.  For CAFA Law Blog posts on the topic, see this link.

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I will be speaking in an upcoming live phone/web seminar on CAFA removal issues sponsored by Strafford Publications.  Here is some information about the program:

CAFA Removal and Remand: Latest Developments

Tuesday, March 29, 1:00pm-2:30pm EDT

Program Description:

Jurisdictional ambiguities in the CAFA statute continue to challenge litigators. One example is the Eleventh Circuit’s Cappuccitti v. DirecTV ruling that the district court lacked jurisdiction because no individual plaintiff or putative class member met the amount-in-controversy requirement. While the Eleventh Circuit later vacated its decision, its initial confusion was caused by CAFA’s ambiguous jurisdictional structure. Another evolving jurisdictional issue is the federal court’s authority to retain jurisdiction post-removal. Courts still wrestle with the effect of post-removal events such as denial of class certification or loss of diversity on continued federal court jurisdiction. While several recent cases more firmly establish continued post-removal federal court jurisdiction, this issue is far from settled.

This program will provide class action litigators with an examination of the latest case law developments in CAFA removal and remand, analyze continued jurisdictional ambiguities and pitfalls, and offer litigation strategies for navigating these ambiguities. The panel will offer perspectives and guidance on these and other critical questions: How are the courts resolving ambiguities in CAFA’s amount-in-controversy requirements for federal court jurisdiction? Do the federal courts retain jurisdiction even after class certification is denied or diversity is destroyed? What post-removal events or circumstances can result in a remand to state court?

The panel presentation will be followed by a  live question and answer session.

For more information and to register, see the Strafford Publications website.

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As 2010 winds down, it’s time to review the key developments in class action law.  It was an especially busy year for the federal courts, and in particular the U.S. Supreme Court, on issues impacting class action practice.  Here, in chronological order, are 10 key developments from the year that was:

  1. January 5 – In In re Baycol Products Litigation, the Eighth Circuit follows the Seventh Circuit’s lead in upholding the right of a federal court to enjoin a putative statewide class action from proceeding where a federal court had already denied class certification in a case involving substantially similar claims.  (See CAB entries dated January 7 and January 12).
  2. February 23 – In a decision that will impact many class actions removed under the Class Action Fairness Act, the Supreme Court adopts the “nerve center test” as the standard for determining corporate citizenship, in Hertz Corp. v. Friend.  (See CAB entry dated March 2)
  3. March 31 – The Supreme Court holds that states may not regulate the types of claims that may be filed as class actions in the federal courts, in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co.  (See CAB entry dated April 8)
  4. April 7 – In American Honda Motor Co. v. Allen, the Seventh Circuit holds that a trial court must rule on challenges to the admissibility of expert testimony relevant to class certification before deciding whether a class may be certified.  (See CAB entry dated May 4)
  5. April 26 – The Ninth Circuit issues its decision in Dukes v. Wal-mart Stores, Inc., adopting rigorous class certification standards similar to those previously adopted by the Second Circuit in In re IPO Securities Litigation, 471 F.3d 24 (2d Cir. 2006), but nonetheless certifying under FRCP 23(b)(2), what has been called the largest employment discrimination class action in history.
  6. April 27 – The Supreme Court seemingly puts an end, for all practical purposes, to the concept of class arbitration by holding that a defendant could not be compelled to defend an arbitration on a class basis where the arbitration clause did not expressly provide for class arbitration, in Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp.  (See CAB entry dated May 11).
  7. June 24 – In Morrison v. National Australia Bank, the Supreme Court deals a fatal blow to “foreign-cubed” class actions, holding that § 10(b) of the Securities and Exchange Act of 1934 does not allow for fraud claims involving transactions on foreign exchanges that occurred outside the United States. (See case summary at SCOTUS blog).
  8. July 19, October 20 – An Eleventh Circuit panel issues a controversial decision in Cappuccitti v. DirecTV, Inc., severely restricting CAFA removal jurisdiction to cases where the amount in controversy exceeds $75,000 with respect to at least one class member, but later reverses itself in an October 15 opinion.  (See Guest Post from Eric Jon Taylor and Jon Chally at CAFA Law Blog for more on the first decision and this October 20 CAB entry on the second decision).
  9. November 9 – Supreme Court hears oral argument in AT&T Mobility v. Concepcion, in which the Court considers whether the Federal Arbitration Act preempts state law holding a class arbitration waiver unconscionable.  (See CAB fsummary of oral argument dated November 17).
  10. December 6 – Supreme Court grants certiorari in Wal-Mart Stores, Inc. v. Dukes, to decide the issue of whether a claim for monetary relief can be certified under FRCP 23(b)(2).  (See CAB entry dated December 7).

Just considering the cases still awaiting ruling before the Supreme Court, 2011 promises to be another exciting year in the world of class actions.  Happy New Year to all!

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The Eleventh Circuit Court of Appeals reversed itself just months after its widely reviled opinion in Cappuccitti v. DirecTV.  In a per curiam opinion issued October 15, 2010, a three judge panel concluded, on rehearing, that the earlier Cappuccitti decision was simply “incorrect.”  The key holding means that a plaintiffs’ class under CAFA does not have to meet a threshold requirement of having at least one plaintiff with a claim of $75,000 or more. 

“Subsequent reflection has led us to conclude that our interpretation was incorrect. Specifically, CAFA’s text does not require at least one plaintiff in a class action to meet the amount in controversy requirement of 28 U.S.C. § 1332(a). Accordingly, we construe both parties’ petitions for rehearing en banc to include petitions for panel rehearing, vacate our earlier opinion, and replace it with this one.” Cappuccitti v. DirecTV, — F.3d —, 2010 WL 4027719 (11th Cir. Oct. 15, 2010) (cites omitted).

 This decision should quiet the near universal criticism that has been clanging through the echo chamber of the class action bar since the appellate court’s July 19 ruling. The July opinion focused on the jurisdictional thresholds of the Class Action Fairness Act (CAFA).  The summer Cappuccitti decision was controversial because it seemingly invented a new requirement for federal courts to exercise original jurisdiction over class actions filed under CAFA.  The opinion set an unprecedented threshold that at least one plaintiff in a CAFA class action must allege an amount in controversy of at least $75,000.  Critics of the ruling observed that such a requirement would effectively end the filing of CAFA class actions in the Eleventh Circuit.  The CAFA law blog has extensively covered the potential impacts.  But never mind, that’s all in the past.  After the most recent ruling, the CAFA doors are now back open.

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While browsing the news today, I came across an informative class action-related snippet on www.lexology.com apparently authored by someone at my firm.  (I’m not sure specifically whom to credit for the tip, I just know it wasn’t me.)  The article summarizes a January 2010 decision authored by Seventh Circuit Court of Appeals Judge Richard Posner regarding the impact of a denial of class certification under the Class Action Fairness Act.  The case is Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805 (7th Cir. 2010).  A full copy of the opinion is available courtesy of the good folks at the CAFA Law Blog.  Here’s a link to the Baker Hostetler article.

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