C. Douglas Floyd, the Inadequacy of the Interstate Commerce Justification for the Class Action Fairness Act of 2005

• Citation: Vol. 55 No. 3
• Publication year: 2006

THE INADEQUACY OF THE INTERSTATE COMMERCE JUSTIFICATION FOR THE CLASS ACTION FAIRNESS ACT OF 2005

C. Douglas Floyd^*

INTRODUCTION

In a recent article,¹I argued that proposed extensions of federal jurisdiction, such as the then-pending Class Action Fairness Act, were overly expansive and, in some applications, unconstitutional. That Act, as well as other jurisdiction-expanding enactments and proposals,²is grounded on the assumption that the formal presence of "minimal diversity" found somewhere in an aggregation of claims whose joinder or consolidation is authorized by statute or rule is sufficient to support the exercise of federal jurisdiction over all of the claims without regard to the context in which that joinder arose or the purposes that it serves.³

By contrast, I argued that the touchstone of validity of expansions of federal jurisdiction over nondiverse state law claims joined or consolidated in an action with claims falling within the scope of Article III of the Constitution is whether the joinder of those nonjurisdictional claims is "necessary and proper" to achieve the purposes of Article III.⁴I further proposed that where the required connection between Congressional "means" and legitimate Article III "ends" is not apparent to the court, Congress should be required to articulate that connection, and that substantial alterations in the historic balance of jurisdiction between federal and state courts should not rest on some

"conceivable" rationale without any indication that Congress considered that objective or sought to achieve it.⁵I argued that the recently enacted and proposed expansions of federal jurisdiction failed that test, but left open the possibility that proponents of those measures might be able to articulate the required connection between legitimate Article III ends and the enlargements of federal jurisdiction that they authorize.

With specific reference to the then-pending Class Action Fairness Act, I particularly questioned whether the provisions of the Act authorizing removal by in-state citizen defendants or class members, or permitting removal in purported but uncertified class actions or in non-class actions based on the citizenship of absent nonparties could survive constitutional examination.⁶

The core of the argument was that in that context, the purpose of the Diversity Clause to protect parties to litigation who were noncitizens of the forum state from discrimination and prejudice in local courts was not served, and therefore failed the required "necessary and proper" analysis. I suggested that "[a] requirement that means be connected to legitimate ends would focus congressional attention on the questions previously raised, and might well result in revisions that would prevent the proposed legislation from being used by in-state business interests seeking protection from the courts of their own states."⁷I further suggested that "[p]erhaps Congress and other proponents of the current proposals for federal jurisdiction expansion on the basis of

'minimal diversity' could provide satisfactory answers to the questions raised in this article regarding these and other questionable aspects [of] the proposals when viewed in terms of the purposes of the Diversity Clause,"⁸but that they had not, to date, done so. "More should be required before the vast expansion of federal court jurisdiction that these proposals seek to accomplish is determined to be 'necessary and proper' to achieve the purposes of Article III."⁹

Subsequent to the publication of that article, the Class Action Fairness Act of 2005 was enacted.¹⁰Compromise amendments to the Act as it had been proposed in 2003 did in fact address some of the objections I had raised, including the elimination of the provision for removal by any member of a purported plaintiff class of state court class actions involving "minimal diversity" between any member of the class and any defendant and the treatment of actions brought "on behalf of" members of the general public as class actions subject to the provisions of the act.¹¹Additionally, the 2005 Act contains complex provisions designed to ensure that "local class actions" remain in state court, where at least two-thirds of the members of the class are citizens of the state in which the action originally was filed, at least one defendant from whom significant relief is sought is a citizen of that state, and the principal injuries resulting from the conduct at issue (or any related conduct) were incurred in that state, provided certain very restrictive conditions are met.¹²Similarly, a declination of jurisdiction over class actions filed or removed under the provisions of the Act is required where two-thirds or more of the members of the purported class and the "primary defendants" are citizens of the forum state.¹³These exceptions at least partially address the questions I raised regarding the appropriateness of removal by in-state citizen defendants when viewed in terms of the core purpose of the Diversity Clause, which is to protect out-of-state citizens from local prejudice.¹⁴

As developed in this Article, however, the exceptions themselves are so narrowly crafted that they rarely will apply. The Act, therefore, will continue to permit removal by in-state citizen defendants of class actions and purported class actions in many cases, even absent any "local prejudice" justification for transferring such actions to federal court. The proponents of the Act were fully aware of this difficulty. As a result, in both the Act's declaration of "Findings and Purposes"¹⁵and in its legislative history,¹⁶they attempted to bolster the

Act with an alternative justification. That justification was based on the alleged adverse effects that Congress found such "interstate class actions" to have on the conduct of interstate commerce. The proponents of the Act artfully attempted to blend their justifications based on interstate commerce with the purposes of the Diversity Clause, thus accepting my invitation to "provide satisfactory answers to the questions raised in [my article] regarding

. . . questionable aspects of the proposals . . . viewed in terms of the purposes of the Diversity Clause."¹⁷

This Article subjects the alternative "interstate commerce" justification for the Class Action Fairness Act of 2005 to critical evaluation. Although the function of the Diversity Clause in promoting interstate commerce has been discussed for many years, its contours and implications have proved to be elusive. Neither the debates leading to the framing of the Constitution nor the decisions of the Supreme Court have explicitly endorsed or given it content. The most obvious reason for this lack has been the absence of legislation whose terms and justification have invoked the Commerce Clause in conferring federal jurisdiction. In this respect, the Class Action Fairness Act of 2005 provides a long-awaited opportunity to give more specific content to the scope of federal jurisdiction that may be supported by reference to this "interstate commerce" or "nationalization" theory of the Diversity Clause.

In brief summary, I conclude that (1) Congress has inappropriately attempted to equate the alleged adverse interstate commerce effects of what it terms "interstate cases of national importance"¹⁸with the purposes of the Diversity Clause; and (2) Congress has exceeded its powers to the extent it has attempted to justify the 2005 Act's jurisdiction-expansion provisions as "necessary and proper" to achieve the purposes of Constitutional provisions external to Article III itself, such as the Commerce Clause.

I. SUMMARY OF THE KEY PROVISIONS OF THE ACT AND THEIR

LEGISLATIVE HISTORY

A. Statutory Provisions

The Class Action Fairness Act of 2005 changes current federal class action practice in two general ways. First, it creates a "Consumer Class Action Bill of Rights"¹⁹that provides for heightened scrutiny of class action settlement proposals, and second, it provides for expanded federal jurisdiction over class actions generally. The Act grants federal courts original jurisdiction over a much broader range of class actions and eliminates several removal restrictions in order to facilitate removal of class actions that originate in state courts.²⁰

The Consumer Bill of Rights requires enhanced judicial scrutiny of class action settlements in a number of respects. For proposed settlements involving coupon awards to the plaintiff class, courts are required to issue "a written finding that[] the settlement is fair, reasonable, and adequate for class members."²¹The Act prohibits settlements that award more money to certain plaintiffs solely because they are geographically closer to the court issuing the judgment.²²Proposed settlements that result in a net monetary loss to class members require a written judicial finding that the "nonmonetary benefits to the class members substantially outweigh the monetary loss."²³Additionally, attorney's fee awards in cases involving coupon settlements are to be made "based on the value . . . of the coupons that are redeemed."²⁴Moreover, each defendant participating in a proposed class settlement must give notice to certain state and federal officials.²⁵

Section 4(a) of the Act expands federal subject matter jurisdiction to give federal courts original jurisdiction over class actions in which the amount in controversy of all class members in aggregate exceeds $5,000,000 and at least one member of the plaintiff class is of diverse citizenship from at least one defendant.²⁶It also creates two exceptions to the expansion of federal jurisdiction that are intended to retain predominately local class actions in state courts. One exception, known as the "Home State" exception,²⁷divides class actions into three categories. First, federal courts "shall decline to exercise" the jurisdiction conferred over class actions in which two-thirds or more of the members of the plaintiff class and the primary...