The decision in Standard Fire Insurance Co. v. Knowles was 9-0, Justice Breyer writing for the Court, and signals’ Justices’ impatience with lawyerly gamesmanship intended to evade CAFA (the Class Action Fairness Act of 2005). I’ve got a short commentary at Cato, which filed an amicus brief on the side that prevailed [decision in PDF, background at SCOTUSBlog, earlier here etc., my new Cato post; more on stage hooks](& SCOTUSBlog, Ted Frank/PoL (“Miller County [Arkansas] trial lawyers had collected hundreds of millions of dollars of legal fees from forum-shopped class-action settlements; the class members whom they purportedly represented likely didn’t even get 10% as much.”))
More: Andrew Trask (“The Supreme Court is envisioning the class action as a procedural aggregation device, rather than a corporate deterrent or a trust-like entity. This is good news for defendants.”); Alison Frankel, Reuters. And I’m quoted on the case in Alex Daniels’ account in the March 20 Arkansas Democrat-Gazette (sub-only).
The Class Action Fairness Act of 2005 aims to steer all but relatively small nationwide class actions into federal court, in part because lawmakers wanted to prevent plaintiff’s lawyers from exploiting the system by forum-shopping cases into state courts that might be biased or ill-equipped to prevent abuse. It therefore allows defendants to remove cases to federal court where the aggregate claim exceeds $5 million. To evade that limit, plaintiff’s lawyers have been proffering stipulations that disclaim (at least temporarily) any intent to ask for more than that sum, even when plausible theories of the case would suggest a larger potential recovery. If the ploy works, they get to stay in the favored state court, and in later stages of litigation they sometimes succeed in using various further tactics to shuffle off the supposed limit and ask for more than $5 million after all.
Aside from the end run it does around the intent of the statute, this practice raises serious ethical issues arising from the lawyers’ duty toward clients, including absent class members who may not even be aware of the suit, let alone in a position to second-guess tactical choices. Disclaiming damages above $5 million, in particular, may be helpful to the lawyer (by obtaining less stringent oversight of the manner in which the suit is prosecuted) yet harm some clients’ interest in obtaining the best recovery.
The U.S. Supreme Court will take up this issue in the spring, and the Cato Institute has filed an amicus brief (PDF) urging the Court to recognize the ethical problem and direct lower federal courts to grant removal where appropriate. Ilya Shapiro has more. Ted Frank at the Center for Class Action Fairness also filed amicus briefs on behalf of certiorari and on the merits; related.
As good an argument for the Class Action Fairness Act as any: Trial lawyers sued Compaq in Texas over an allegedly defective disk controller, though none of the plaintiffs had ever suffered a malfunction or a loss of data, alleging a violation of Texas consumer fraud law on behalf of a nationwide class. No dice: the Texas Supreme Court threw out the case, noting that Texas law did not permit the sort of nationwide class action contemplated by the plaintiffs. End of story? Nope: the same trial lawyers filed the same complaint again, this time in Oklahoma state court, and asked the Oklahoma state court to apply Texas law to a nationwide class. “Sure thing!” the court rubber-stamped–applying an ersatz version of Texas law rejected by Texas courts. The forum-shopping was able to extract $40 million in attorneys’ fees from a questionable coupon settlement, as an Overlawyered post noted August 6. The Summer 2008 issue of State Court Docket Watch includes my essay discussing why this is a constitutionally problematic set of decisions by Oklahoma courts–written before, though published after, the Anthony Caso analysis for WLF.
In an interview of Senator Barack Obama on Fox News, Chris Wallace questioned Obama’s claims of being a post-partisan leader who reached across the aisle. In response, Obama identified his support of the Class Action Fairness Act tort reform bill. Is this persuasive evidence of bipartisan behavior? I explore the question in today’s Examiner.
The Washington Legal Foundation announces a new paper by Brian Anderson and Mel Schwing: “Two leading class action defense
attorneys utilize a federal court judge’s recent rejection of a settlement as a case study of how CAFA can deter defendants’ ability to ‘buy peace’ through settlements” in cases where the claim is so meritless that it is only worth a small amount of money for the defendant to settle:
While CAFA surely benefited class action defendants more than plaintiffs by transferring more cases to federal courts that offer more fairness and predictability in the adjudication of class actions, it is not a “free-pass” for targets of class action lawsuits.
The quid pro quo of giving class action defendants greater access to federal courts is that CAFA expects defendants to vigorously litigate, not settle via coupon settlements, frivolous class actions. The message of Figueroa is that class action defendants in federal court who try to escape all litigation risk by proposing low-value coupon benefits in exchange for global releases of claims (especially where competing lawyers and attorneys’ general are involved in the controversy) will have a difficult time persuading the federal courts to approve such settlements.
Figueroa was the first time in the three-year history of CAFA that state attorneys general used their CAFA right to intervene in a settlement hearing. Last year, I also took a look at CAFA.
Victor M. Diaz, Jr., who has served as vice-chair of ATLA’s aviation section among other honors in representing the plaintiff’s bar, writes in Florida’s Daily Business Review taking issue with some of his colleagues’ doomsaying about the Class Action Fairness Act, which he says has proved “no calamity after all“:
More than two years after President Bush signed CAFA into law, these concerns are proving to be greatly exaggerated. CAFA should not be feared by the plaintiffs bar.
While the days of cases filed in remote, plaintiff-friendly state court venues may be over, CAFA has led to better representation of classes by plaintiffs attorneys and better outcomes for class members. On the whole, the potential shift of nearly all class actions to federal court has elevated the class action bar and meant better quality judicial review of corporate class-wide abuses.
As with Congress’s earlier reform of shareholder suits, the major effect seems to be not to choke off litigation, but to improve its average quality (cross-posted from Point of Law).
The latest AEI Liability Outlook, which has my take on two years of CAFA, is on-line.
By a 72-26 vote, with 18 Democrats and Vermont’s Jeffords joining a unanimous roster of Republicans, the Senate has approved this bill, which would 1) move most interstate class actions from state into federal court and 2) regulate various practices such as the use of coupon settlements. House approval and a Presidential signature are expected in short order, giving the returning Bush administration its first major legislative victory and dealing a rare defeat to the Association of Trial Lawyers of America. Such defeats have been so rare that CAFA, though hardly radical and not a little watered down from earlier versions, probably constitutes the most ambitious tort-reform measure to pass at the federal level in recent decades. (New York Times).
For some of this site’s past posts on the bill, see Apr. 25-27, Jun. 12-15 and Jun. 25, and Sept. 28, and Oct. 21, 2003. Jim Copland and others have wall-to-wall coverage of the new developments at Point of Law, including posts on the roll call; background (including links to four past Manhattan Institute studies on the issue); the “magnet-court” problem; and last but not least, a new Manhattan Institute study by Yale law prof George Priest taking a closer look at some widely circulated statistics about class settlements, and opining that CAFA would be a useful if limited first step in addressing the problems raised by such litigation.
Elsewhere on the web, some plaintiff’s-side observers are pointing out that the new rules ushered in by the bill will likely be actively beneficial to the practice of some lawyers who specialize in filing such suits (though detrimental to others’), and that some businesses that get sued are likely to find their position worsened (not only may they find it harder to enter cheap coupon settlements, for example, but they may face a proliferation of one-state-only class actions). See, in particular, Evan Schaeffer and C. E. Petit (“Scrivener’s Error”). Meanwhile, Dwight Meredith perhaps surprisingly “do[es] not oppose the proposed reform of class action suits” but believes its GOP sponsors are being inconsistent, and Bill Childs wonders if there’s more to the debate besides money. Finally, Baseball Crank points out a possibly headache-making technical aspect of the bill.
Recent news in class action reform (see Dec. 5 and links therein): Fox News on ATLA attempts to defeat the Class Action Fairness Act (Kelley Beaucar Vlahos, “Class-Action Lawsuit Reform Near but No Cigar Yet”, Feb. 18); the failings of coupon settlements, including of a coupon-trading service, to protect consumers (Ameet Sachdev, “Class-Action Coupon Settlements Draw Ire in Congress, Courts”, Knight-Ridder/Tribune, Feb. 29); the Kansas House of Representatives decide whether to join the federal courts in permitting interlocutory appeals of class certification decisions (Dan Margolies, “Proposed change in class-action law moves ahead”, Kansas City Star, Mar. 2).
Reports from Capitol Hill indicate that Congress may be ready to pass a version of the filibustered Class Action Fairness Act (Oct. 21, Sept. 28, etc.) early next year after alterations to bring aboard three Democratic Senators who had supported the filibuster, Chris Dodd of Connecticut, Mary Landrieu of Louisiana and Chuck Schumer of New York. We haven’t had a chance to check the details of how good the resulting bill is, but one circumstance speaks strongly in its favor: Ralph Nader is really upset. (Charles Hurt, “Revised lawsuit-reform bill wins Democratic converts”, Washington Times, Nov. 27; Joseph Straw, “Nader slams Dodd?s class action reform act”, New Haven Register, Dec. 3; Bruce Alpert, “House, Senate avoid gridlock” (Landrieu), New Orleans Times-Picayune, Dec. 1). See also John Godfrey, “US Senate Democrats Seek To Revive Class-Action Bill”, Dow Jones/Yahoo, Nov. 17 (Sen. Jeff Bingaman, D-N.M., also said to be open to compromise).
The Class Action Fairness Act, a version of which has already passed the House with White House support, may be brought to the floor of the Senate tomorrow, but Democratic leaders are saying they have enough votes lined up for a filibuster to prevent its passage (Jesse J. Holland, “Supporters looking for more votes to help class action legislation past filibuster”, AP/San Francisco Chronicle, Oct. 20; Helen Dewar, “GOP Pushes Vote to Curb Class-Action Suits”, Washington Post, Oct. 21; Heather Fleming Phillips, “Group tries to rein in lawsuits”, San Jose Mercury News, Oct. 21). If so it’s a shame, the more so as some of the most persuasive argumentation for the CAFA has come from New Democrat circles, especially from Walter Dellinger, solicitor general during the Clinton Administration, now a professor at Duke Law and partner at O’Melveny & Myers (home of our co-blogger Ted Frank). (“The Class Action Fairness Act”, Progressive Policy Institute, Mar. 11). “The states whose courts have honorably decided not to play class action games are, contrary to fundamental federalism principles, being forced to transfer authority over their citizens’ claims and the interpretation of their own laws to other states whose courts seem to have an insatiable appetite for such lawsuits,” according to Dellinger. See New Democrats Online, “Breakthrough in the Courts?”, Feb. 19; “Compromise on Class Action Reform”, May 1.
Last month the Hartford Courant editorially endorsed the Class Action Fairness Act: “No one in Congress is proposing doing away with class-action lawsuits. Rather, this overdue legislation would curtail some of the worst abuses. Legislators have debated the issue long enough. There’s no good reason to wait another year to adopt this important reform.” (“Stop Class Action Abuses”, Aug. 22, no longer online). This weekend the New York Daily News takes a sharper tone: “Who could be against this rational reform? The trial lawyers’ lobby, that’s who. The sharks are not about to surrender their feeding grounds. Sens. Chuck Schumer and Hillary Clinton could have a huge impact on the matter, but so far both appear happy in the role of remora.” (“End lawyers’ shopping spree” (editorial), New York Daily News, Sept. 28).
Notwithstanding Schumer’s and Clinton’s stance, Business Week notes that the bill has won significant support among moderate-to-liberal Democrats (Lorraine Woellert, “Tort Reform Even a Democrat Could Love”, Jun. 2). A study from the Illinois Civil Justice League finds that, contrary to widely repeated reports, it is untrue that the state courts will lose jurisdiction over the great majority of the class actions they now hear. Meanwhile, Sen. John Breaux (D-La.) has been promoting a watered-down alternative to the legislation, but last week Sen. Chuck Grassley (R-Ia.) blasted the Breaux alternative as a “poison pill” which would doom class action reform efforts (Mark A. Hofmann, “Grassley blasts competing class-action reform plan”, Business Insurance, Sept. 23). (Earlier editorial (Washington Post, Christian Science Monitor, etc.): see our Jun. 25 report.)
Though the “20/20″ web page is featuring Macaulay Culkin’s new role as “a cross-dressing, gay, sociopathic killer,” the ABC program will also have a John Stossel segment on Friday, September 5, on “magnet county” state courts and on S. 274, the Class Action Fairness Act of 2003. The bill would expand federal jurisdiction over class actions, limiting the ability of plaintiffs to file multiple class actions in multiple state courts in hopes of finding a court willing to certify a nationwide class. Earlier discussion: June 25 and here (scroll to “Madison County”). Addendum: transcript of Stossel show is here.
“[N]o area of U.S. civil justice cries out more urgently for reform than the high-stakes extortion racket of class actions, in which truly crazy rules permit trial lawyers to cash in at the expense of businesses. Passing this bill would be an important start to rationalizing a system that’s out of control,” editorializes the Washington Post (“Reforming Class Actions”, Jun. 14). “Federal courts are better equipped to handle complex cases with national implications. Of course, they’re also more likely to dismiss class-action suits. So it’s no wonder that trial lawyers are up in arms about this legislation,” notes the Chicago Tribune, which likewise supports the bill (“The class action money-chase”, Jun. 18). As does the Las Vegas Review-Journal (“A real class act”, Jun. 13) (& see Apr. 25-27 (Christian Science Monitor).
The bill passed the House Jun. 12 by a 253-170 vote with not only near-unanimous GOP support but also significant backing among liberal lawmakers, including Emanuel (D-Ill.), Harman (D-Calif.), Ford (D-Tenn.), Peterson (D-Minn.) and McCarthy (D-N.Y.), according to roll calls posted by the National Association of Manufacturers, which like the U.S. Chamber and virtually every other business group supports the bill. See also Christopher Armstrong, “Class Action Reform Gets Verdict in the House, Jury Still Out in the Senate”, Center for Individual Freedom, Jun. 19. Opposed: New York Times, Philadelphia Inquirer, Columbus Dispatch, Rep. John Conyers, as well as L.A. Times and Milwaukee Journal-Sentinel (not online).