67 The Alabama Lawyer 125 (2006). Settlements Under the Class Action Fairness Act of 2005.

• Author: BY EDWARD A. HOSP

The Alabama Lawyer

2006.

67 The Alabama Lawyer 125 (2006).

Settlements Under the Class Action Fairness Act of 2005

Settlements Under the Class Action Fairness Act of 2005BY EDWARD A. HOSPIntroduction

It is often said that class action lawsuits are filed in order to be settled, and not to be tried. Congress, in passing the Class Action Fairness Act of 2005 ("CAFA"), clearly demonstrated that they either did not understand this, or did not like it. The provisions of CAFA relating to settlement make it much more difficult to settle class actions in federal court. In fact, the settlement provisions are such that both defendants and plaintiffs should seriously weight the issues relating to the forum in their original pleadings (for plaintiff), and when considering removal (for defendant) if they want to preserve the flexibility to settle the class at a later date.

Background

The Class Action Fairness Act of 2005, which had been introduced in the 109th Congress as Senate Bill 5, was signed into law by President George W. Bush on February 18, 2005 and became Public Law No. 109-2. Slightly different versions of the Act had been proposed numerous times in the past, including the 106th, 107th and 108th Congresses. While the more conservative House of Representatives had generally given final approval to prior versions without much trouble, the proposals had fallen short of attracting the 60 votes necessary to end a filibuster in the Senate - in 2004 by just one vote.

The version proposed and passed in the 109th Congress had as its primary sponsor Senator Charles Grassley, Republican of Iowa. The primary co-sponsors included Herb Kohl, Democrat of Wisconsin, and Orrin Hatch, Republican of Utah. The bill was one of the primary agenda items for President Bush in his second term, and was passed pursuant to a compromise on provisions that were agreed to by certain key Democratic and Republican senators.

In general, the bill was intended to address what the Senate Judiciary Committee's Report described as "the numerous problems with the current class action system."(fn1) S. Rep. No. 14, 109th Cong., 1st. Sess. at 4. Although the report states that the "abuses [were] undermining the rights of both Plaintiffs and Defendants,"(fn2) it is clear that Congress believed that the perceived abuses, whether real or not, typically favored Plaintiffs. More accurately, the language of the Senate Report indicates a belief that the perceived abuses worked to the benefit of plaintiffs' lawyers, especially in the area of class action settlements. In order to address these abuses, which occurred primarily in state courts, the Act made radical changes to the federal statute relating to diversity jurisdiction, adding a new sub-section to the code that eliminated the complete diversity requirement for class actions. Pub. L. No. 109-2, 110 Stat. 9-12, codified at 28 U.S.C. § 1332(d). The Act further imposed significant restrictions on the settlement of class actions in federal court. Pub. L. No. 109-2, 110 Stat. 5-9, codified at 28 U.S.C. § 1711-15.

This article addresses the statutory language of CAFA relating to settlements as informed by the stated purposes of the Act set forth in the Senate Report. While cases have begun to be removed or filed in federal court based on the expanded federal jurisdiction provided by CAFA, it does not appear that any cases have progressed to the point at which the case could have been settled under the new provisions that the Act provides. As such, it may be some time before we have the benefit of any judicial interpretation of the settlement provisions of the Act.

The Act's Effective Date And Application

Section 9 of the Act states that the law "shall apply to any civil action commenced on or after the date of enactment of this act." Pub. L. No. 109-2, 110 Stat. 14. Any case filed prior to February 19, 2005 does not fall within the ambit of the Act's provisions relating to federal jurisdiction or settlement. As a practical matter, therefore, federal courts examining class action settlements will, for many years, be required to apply both pre- and post-CAFA rules depending on the date the case was commenced. By way of example, a class action filed in federal court on February 17, 2005 and settled in January 2007 would not be subject to the Act's provisions related to settlements and coupon-based relief. In contrast, a case filed on the next day, February 18, 2005, but settled a year earlier in January 2006 would be subject to all of the procedural restrictions of CAFA.

Stated Purpose Of the Act's Provisions Relating to Settlements

One of the perceived evils sought to be addressed by the Class Action Fairness Act was the "dramatic explosion of class actions" in certain magnet jurisdictions, such as Madison County, Illinois. S. Rep. No. 14, 109th Cong., 1st Sess. at 13. According to the Senate Judiciary Committee, one reason for this development was that certain state court judges were believed to be lax in applying the procedural requirements set forth in Rule 23 of the State Rules of Procedure.(fn3) Id. at 14.

According to the Senate Report, the failure of the state courts to, in its view, properly apply the requirements of Rule 23 was not necessarily the fault or intention of state court judges. Rather, the Report pointed out, state courts often lacked the resources they needed to supervise large, multi-state class action settlements. For example, most state court judges do not have law clerks, nor is there a system in place such as the magistrate system in federal court, or processes for the appointment of special masters for complex litigation. Id. The Class Action Fairness Act therefore was designed to provide a federal forum, and, thus, the...