CAFA's impact on class action lawyers.

• Author: Erichson, Howard M.
• Position: Class Action Fairness Act

INTRODUCTION

Procedural reforms alter litigation options directly, but they alter the litigation landscape in more ways than reformers anticipate. Three years ago, Congress dramatically expanded federal jurisdiction with the Class Action Fairness Act of 2005 (CAFA), (1) a statute drafted with no love for class action plaintiffs' lawyers. Those lawyers have adapted to the statute, in part, by altering their forum-selection and claim-selection strategies. Analysis of these adaptations offers an emerging picture of the statute's impact on class actions and class action lawyers. CAFA's impact on the class action bar deserves particular attention because, although the statute speaks the language of subject matter jurisdiction, its message of mistrust was aimed squarely at the lawyers.

CAFA, like every other major class action development of recent years, was born amidst snide remarks about lawyers' inventing lawsuits and manipulating the system to enrich themselves at others' expense. Politicians and other CAFA proponents called class action lawyers self-interested," un scrupulous, (3) unprincipled, (4) and unaccountable. (5) When past reforms targeted class action lawyers, however, some of those lawyers made out quite well, proving that as lawyers adapt, the fittest may not only survive but thrive.

Recent class action reforms--the Private Securities Litigation Reform Act of 1995 (PSLRA), (6) the Supreme Court's 1997 and 1999 settlement class action decisions in Amchem Products, Inc. v. Windsor (7) and Ortiz v. Fibreboard Corp., (8) and the Rule 23 amendments of 2003'--have addressed a variety of legal issues but share a common theme of mistrust. Each sought to tighten controls on class action lawyers to reduce abuse in light of problems of agency, autonomy, and leverage. Add to this picture the criminal prosecution of the Milberg Weiss firm and several of its leading partners for payments to class representatives in securities class actions, (10) the criminal prosecution of plaintiffs' attorney Louis Robles for misappropriation of settlement funds," a similar prosecution of several Kentucky mass tort lawyers, (12) and a spate of civil lawsuits against mass litigators claiming that they breached their duties to their clients, (13) and the environment of mistrust of mass litigators becomes even clearer. Even the Supreme Court's 2007 pleading decision in Bell Atlantic v. Twombly (14) can be viewed, in part, as an effort to prevent lawyers from filing questionable class actions. (15)

While these developments have profoundly affected class litigation, they have left largely untouched the basic class certification standard of Rule 23(a) and 23(b). (16) Rather than alter the basic test for the legitimacy of a class action, CAFA and the other reforms tightened procedural protections to prevent abuse of the class action device. They regulated the selection of class counsel, tightened control of class counsel fees, toughened pleading requirements, reduced class counsel's ability to dictate the choice of forum, facilitated interlocutory appeals, and impeded settlement class actions and coupon settlements. Taken together, the overall message of recent developments seems to be, "in theory, class actions are fine, but in practice, don't trust the class action lawyers."

The history of recent class action reforms suggests that even if changes are driven by wariness about class action lawyers, the adjustments may have the unintended consequence of strengthening the position of certain of those lawyers. Indeed, data on post-CAFA class action filings suggest that, like the 1995 securities litigation statute, CAFA has shifted class action practice in ways that will strengthen the upper tier of the plaintiffs' class action bar.

Part I of this Article shows the extent to which CAFA was motivated by a mistrust of class action lawyers. Part II places CAFA in the context of other recent class action developments. Similar feelings of mistrust motivated many of those developments, yet the changes--particularly those brought about by the PSLRA--brought the unintended consequence of enhancing the power of the strongest class action law firms. Part III looks at data on post-CAFA shifts in class action practice and the effect of those shifts on the class action bar. CAFA has affected not only the division of labor between state and federal courts, but also horizontal forum selection among federal courts and class action claim selection. These changes, taken together, bode well for the same upper echelon of firms that profited from the unintentional impact of prior class action reform.

1. CAFA AND THE MISTRUSTED CLASS ACTION LAWYER

   "The people in democracy do not distrust lawyers," Alexis de Tocqueville wrote, "because they know that their interest is to serve the people's cause; they listen to them without anger, because they do not suppose them to have ulterior motives." (17) Tocqueville never saw a class action.

   The combination of big money and clientlessness breeds mistrust. CAFA's proponents successfully portrayed class action lawyers as opportunistic aggregators who get rich on litigation of their own making, with little control by clients, little remedy for each client, and few clients who even care enough to sue. At its core CAFA addresses subject matter jurisdiction, and to the extent federal jurisdiction statutes involve mistrust, they ordinarily involve mistrust of state judges. Diversity jurisdiction grew out of a mistrust of state court judges to administer and ad judicate cases without local bias. (18) Federal question jurisdiction grew out of a mistrust of state court judges to pay sufficient attention to federal law claims. (19) The Class Action Fairness Act, too, was driven in significant part by mistrust of state court judges, (20) but unlike other jurisdictional statutes, CAFA also centrally involved mistrust of lawyers: untrustworthy lawyers necessitate monitors; untrustworthy monitors necessitate the empowerment of alternative monitors. (21)

   CAFA dramatically expanded federal subject matter jurisdiction over state law class actions. Before CAFA, if plaintiffs' counsel preferred state court, it was easy to avoid federal court simply by choosing class representatives to destroy complete diversity, (22) by naming a nondiverse (23) or in-state defendant, (24) or by asserting individual claims below $75,000. (25) CAFA permits federal jurisdiction over class actions based on minimal diversity and an aggregate amount in controversy of five million dollars. (26) Moreover, it allows removal by any defendant, even an in-state defendant. (27) The statute includes exceptions that purport to keep local controversies in state court, (28) but those exceptions are quite narrow. (29) By replacing the complete diversity requirement with minimal diversity, by eliminating the in-state defendant exception and the unanimity requirement for removal, and by allowing aggregation of the amount in controversy, CAFA ensured that nearly all large-scale class actions could be filed in or removed to federal court.

   President Bush, signing CAFA in February 2005, emphasized his mistrust of class action lawyers. He began by reaffirming, at least in lip service, the importance of legitimate class actions: "Class actions can serve a valuable purpose in our legal system. They allow numerous victims of the same wrongdoing to merge their claims into a single lawsuit. When used properly, class actions make the legal system more efficient and help guarantee that injured people receive proper compensation." (30) He turned quickly, however, to his main point: "Class actions can also be manipulated for personal gain." (31) Quoting an editorial that called class actions "an extortion racket," the President praised Congress for addressing the problem of class actions in which "lawyers went home with huge payouts, while the plaintiffs ended up with coupons worth only a few dollars." (32)

   The President was echoing Congress. Although the statutory language stopped short of "extortion racket," the congressional findings in CAFA made the same point: "Class members often receive little or no benefit from class actions, and are sometimes harmed, such as where ... counsel are awarded large fees, while leaving class members with coupons or other awards of little or no value." (33)

   Individual legislators were blunter. Senator Orrin Hatch urged passage of the bill as a way to curb the "intolerable practice" of lawyers' gaming the system for their own advantage: "[L]et me explain just how this game works. It starts with a few class action attorneys sitting around a table, thinking of an idea for a class action lawsuit." (34) Hatch proceeded to describe the search for a deep-pocket defendant, the naming of a lead plaintiff to avoid diversity jurisdiction, the search for a compliant judge, and ultimately, the settlement of the action in the lawyers' interests:

   The real kicker is this: in some cases, many believe the only interests served by these settlements are those of the class counsel. Again, they will walk away with hundreds of thousands and sometimes millions of dollars. And what do the class members recover? Perhaps a worthless coupon. There you have it, a successful gaming of the State tort system by the class action lawyers. This is an intolerable practice and one that the Class Action Fairness Act will curb. (5) Representative Chris Cannon, speaking in favor of the House bill, echoed Hatch's concerns and called the game "Class Action Monopoly." (36) Senator Chuck Grassley wrote that "increasingly these days, class action lawsuits are more likely to enrich the lawyers filing them than compensate the consumers who've been harmed." (37)

   During the years when CAFA was making its way through legislative channels, editorials, op-eds, and articles appeared in papers around the country explaining the need for the statute in terms of mistrust of both class action...