Tcl - the Class Action Fairness Act - September 2005 - the Civil Litigator
| Publication year | 2005 |
| Pages | 73 |
| Citation | Vol. 34 No. 9 Pg. 73 |
2005, September, Pg. 73. TCL - The Class Action Fairness Act - September 2005 - The Civil Litigator
September 2005
Vol. 34, No. 9 [Page 73]
The Civil Litigator
The Class Action Fairness Act
by Michael S. Freeman, Amy R. Freestone, Roger C. Adams
The Civil Litigator column addresses issues of importance and interest to litigators and trial lawyers practicing in Colorado courts. The Civil Litigator is published six times a year.
Column Editors:
Don Kelso, Denver, of Holme, Roberts & Owen LLP - (303) 861-7000, kelsod@hro.com; Eric Bentley, Colorado Springs, of Holme, Roberts & Owen LLP - (719) 381-8400, bentlee@hro.com
Michael S. Freeman is a partner with Faegre & Benson LLP - (303) 607-3672, mfreeman@faegre.com. His practice focuses on consumer class action defense and commercial litigation. Amy R. Freestone is an associate in the General Litigation Group of Faegre & Benson LLP - (612)766-7768, afreestone@faegre.com. Her practice focuses on class action defense and drug and medical device litigation.
This article summarizes the major provisions of the Class Action Fairness Act of 2005 and addresses the likely effect of the act on class action litigation.
The Class Action Fairness Act of 2005 ("CAFA")1 went into effect February 18, 2005. This article summarizes the legislative goals of CAFA and highlights the key provisions of the statute. It also addresses how CAFA may affect class action litigation in practice.
Background and Purpose of CAFA
CAFA was one of the first bills passed by the newly convened 109th Congress in 2005, but it is the product of nearly a decade of legislative efforts.2 CAFA's stated purpose is to
assure fair and prompt recoveries for class members with legitimate claims by prohibiting unfair settlement; restore the intent of the Framers with regard to diversity jurisdiction by creating federal jurisdiction over interstate class actions; and encourage innovation and lower consumer prices by diminishing incentives for attorneys to file frivolous suits.3
The statute reflects Congress's determination that class actions, although a valuable part of the legal system, have been subject to a number of abuses over the last decade. Congress determined that such abuses have injured both consumer plaintiffs and defendants, adversely affected interstate commerce, and undermined public respect for the judicial system.4
CAFA makes substantial changes in two areas where Congress perceived abuses to be occurring. First, CAFA dramatically extends the reach of federal diversity jurisdiction over state law class actions. Congress wished to correct a "glitch" in federal jurisdiction law that prevented many class actions that were national in scope from being litigated in federal courts.5 This limitation led to the prominence of certain "magnet" state courts, such as those in Madison County, Illinois and Jefferson County, Texas. Numerous nationwide class actions were filed and litigated in small-town venues because plaintiff attorneys perceived those courts to be very likely to certify such classes.6 Congress expects that federal courts will "pay closer attention to the procedural requirements for certifying" a class action than many state courts have in the past.7 The federal judiciary, however, opposed the expansion of its jurisdiction, because it was expected to federalize most class action litigation.8
Some in Congress also expressed concern over the "gaming of the state tort system" by the filing of numerous similar or identical class actions in different state courts around the country. Courts in different states lack a procedure comparable to the federal multi-district litigation panel9 for consolidating such cases. This tactic thus increased the likelihood that at least one state court would certify the putative class, and it was viewed as greatly increasing settlement pressure on the defendants involved.10
Second, CAFA imposes new requirements on the settlement of class actions to prevent certain perceived abuses. CAFA observes that plaintiffs' counsel sometimes recover large fees in settlements where the class members receive awards of "little or no value," such as coupons for the purchase of additional products from the defendant.11 CAFA requires heightened judicial scrutiny of such "coupon" settlements. CAFA also requires that federal and state government agencies be notified of proposed class action settlements and be given an opportunity to object to them.12
CAFA is not retroactive. Its provisions apply to all cases filed on or after its enactment on February 18, 2005.13 The Seventh Circuit has suggested, however, that CAFA also might be applied to previously filed cases when a new claim or defendant is added after February 18, 2005.14
Provisions of CAFA
This section discusses major changes in class actions made by CAFA. They represent a significant expansion of federal jurisdiction over state law class actions and impose new requirements for class action settlements.
Original Federal Diversity Jurisdiction for Interstate Class Actions
CAFA provides original federal jurisdiction over class action complaints alleging state law claims where class members' aggregate alleged damages exceed $5 million and where "any member" of a plaintiff class is a citizen of a different state "from any defendant."15 This language eliminates two features of federal diversity jurisdiction law that previously kept many class actions in state court.
First, federal law no longer requires "complete" diversity between plaintiffs and defendants in class actions; that is, it no longer requires that every plaintiff be from a different state from every defendant. In practical terms, this longstanding limit on federal diversity jurisdiction meant that a class action could be kept out of federal court simply by naming a peripheral defendant from the same state as one of the plaintiffs. For example, a plaintiff suing an out-of-state insurance company also could name a local agent of that company as a defendant.16
Second, the requirement of $5 million in controversy for federal diversity jurisdiction eliminates another limitation that had kept many significant class actions in state court. Following a 1969 Supreme Court opinion,17 courts have not allowed the claims of individual class members to be aggregated to satisfy the amount-in-controversy requirement (which is currently $75,000).18 In the past, therefore, even when complete diversity existed between the plaintiffs and defendant and far more than $75,000 was at issue for the class as a whole, class actions could not be heard in federal court unless each class member stood to recover more than $75,000 individually.19
CAFA's sponsors considered it "nonsensical" that an individual tort case between two citizens of different states seeking $75,001 could be filed in federal court, but "a class action involving 25 million people living in all fifty states and alleging claims . . . collectively worth $15 billion" usually had to be heard in state court. CAFA allows the individual class members' claims to be aggregated, but imposes the higher $5 million amount-in-controversy requirement.20
Notably, although many of the perceived abuses that led to CAFA's enactment involved nationwide class actions being heard in a state court, CAFA is not limited to such nationwide class actions. It authorizes federal jurisdiction over many class actions where the classes are limited to a single state. For example, federal diversity jurisdiction now exists over many cases filed on behalf of a putative class solely of Colorado residents, if the defendant is not a Colorado citizen.
Exceptions: CAFA provides certain exceptions to its expansion of diversity jurisdiction. These include: (1) where a defendant is sued in its home state by a class comprised primarily of plaintiffs from that state; (2) where the case involves a purely local controversy; (3) where the putative class has fewer than 100 members; and (4) certain securities class actions; and (5) corporate governance class actions.21 CAFA's legislative history indicates that the party opposing federal jurisdiction bears the burden of demonstrating that one of these exceptions applies.22
Exception 1: Where the "primary...
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