CAFA's impact on forum shopping and the manipulation of the civil justice system.

• Author: DiFazio, Kalee
• Position: Class Action Fairness Act of 2005

Congress enacted the Class Action Fairness Act of 2005 ("CAFA") in response to perceived problems with, and abuses of, the traditional class action system. (1) Proponents of CAFA accused class action lawyers of abusing the device to benefit their own interests, rather than the interests of individual class members. (2) this abuse also extended to state and local courts that kept cases of national importance out of federal court, displayed bias against out-of-state defendants, and made binding judgments that imposed on the rights of out-of-state residents. (3) Recognizing that procedural safeguards were necessary to remedy this abuse and to ensure that class actions operate as a "valuable tool in our jurisprudential system," Congress implemented CAFA. (4)

CAFA's purpose is to assure prompt recovery for class members with legitimate claims by expanding the scope of federal diversity jurisdiction over interstate cases of national importance. (5) CAFA expands original jurisdiction of the federal courts to class action suits where (1) the amount in controversy exceeds $5 million; (2) the class is made up of over 100 members; and (3) any one plaintiff is diverse from any one defendant. (6) Additionally, CAFA makes federal courts more accessible to a removing defendant by relaxing the traditional removal requirements. (7)

While these procedural changes have addressed many of the abuses Congress sought to correct, CAFA's provisions have created new interpretation issues for the courts and a new form of abuse by attorneys. (8) For example, although there is evidence that CAFA has successfully shifted many class action disputes from state to federal courts, CAFA does not address the underlying problems that created abuse of the class action device in the first place: forum shopping and manipulation of the civil justice system. (9) Exacerbating the issue, the circuit courts are split regarding what burden a removing party must meet to demonstrate that the amount in controversy exceeds $5 million. (10) This circuit split creates an incentive for attorneys seeking to avoid federal jurisdiction to further abuse the civil justice system. (11)

This Note proposes that although CAFA may have successfully shifted many nationwide class actions to federal courts, it has not remedied the underlying abuses that first prompted class action reform. (12) Part I outlines CAFA's history and implementation. (13) Part II discusses CAFA's docket shift from state to federal courts and the challenges each circuit has faced with interpreting the burden a removing defendant must meet to invoke CAFA jurisdiction. (14) Finally, Part III analyzes the implications of CAFA's docket shift, as well as the circuit split, on forum shopping and the manipulation of the civil justice system. (15)

1. HISTORY AND IMPLEMENTATION OF THE CLASS ACTION FAIRNESS ACT OF 2005

   1. Class Actions in Need of Reform

      Class actions have been utilized for over 150 years to adjudicate disputes involving numerous parties. (16) For plaintiffs, class actions provide a mechanism for seeking redress against a common defendant when the interest of each individual plaintiff is not substantial enough to justify the cost of litigation. (17) For defendants, class actions avoid inconsistent results and promote efficiency by allowing the adjudication or settlement of all potential claims at one time. (18) For courts, class actions promote the economical administration of justice by avoiding multiple suits involving the same claims. (19) Finally, for consumers, class actions promote corporate accountability and fairness in the marketplace. (20)

      Despite these benefits, class actions have been heavily criticized. (21) In the pre-CAFA context, critics cited lax class certification by state court judges as leading to abuse of the class action device. (22) Specifically, critics were concerned that lax certification encouraged attorneys to abuse the civil justice system by "forum shopping" for pro-plaintiff state court jurisdictions, and by manipulating pleadings to avoid federal jurisdiction altogether. (23)

      1. Lax Certification and the Magnet Jurisdiction Problem

         Under Rule 23, a class action may be brought so long as the following conditions are met:

         (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class. (24)

         Congress imposed these requirements to promote efficient administration of justice and to safeguard the due process rights of absent class members and defendants. (25)

         However, during the litigation explosion of the 1990s, state court judges of certain jurisdictions, known as magnet jurisdictions, developed a reputation for being less careful than their federal counterparts about applying Rule 23's requirements to potential classes of plaintiffs. (26) Absent consistent class certification by state judges, attorneys had an incentive to file similar lawsuits in several jurisdictions in order to find a judge willing to certify the class. (27) Critics of the class action device opposed this practice as increasing judicial inefficiencies and contravening the Supreme Court's anti-forum shopping policy. (28)

         Additionally, critics cited magnet jurisdictions as leading to frivolous lawsuits that violated the due process rights of defendants. (29) For example, in the pre-CAFA context, attorneys were more likely to file weak lawsuits in magnet jurisdictions because once a lawsuit was certified as a class action, it was more likely to be settled. (30) Due to the expense and negative publicity associated with defending against a class action lawsuit, many defendants chose to settle class actions in the early stages of litigation. (31) When these same lawsuits were based on frivolous claims, the due process rights of the defendant were violated. (32)

      2. Diversity Jurisdiction Manipulation

         Critics also claimed that class action attorneys "gamed the system" by manipulating the requirements of diversity jurisdiction to avoid federal court. (33) Under 28 U.S.C. [section]1332, a dispute may be heard in federal court if the parties are diverse and the amount in controversy exceeds the statutorily-required threshold, which is currently set at $75,000.34

         Before enactment of CAFA, the "complete diversity rule" mandated that all named class action plaintiffs be from different states of all named defendants. (35) Additionally, 28 U.S.C. [section]1441(b) prohibited removal of a class action from state court if any defendant was a citizen of the state in which the action was filed. (36) Thus, by purposefully adding a non-diverse party, or by filing the action in the defendant's state of citizenship, class action attorneys manipulated diversity jurisdiction to evade federal court. (37)

         Attorneys also avoided federal jurisdiction by manipulating the amount in controversy requirements. (38) The Supreme Court has held that where one plaintiff meets the requisite amount in controversy, other plaintiffs with the same or substantially similar claims against a common defendant will not defeat diversity jurisdiction, even if those plaintiffs' claims are for less than $75,000. (39) However, by claiming that no one plaintiff' s damages meet the statutorily required amount, class action attorneys "misused" the jurisdictional threshold to avoid federal jurisdiction. (40)

   2. The Class Action Fairness Act of 2005

      These criticisms led Congress to pass CAFA, a procedural statute intended to rectify past abuse by amending diversity jurisdiction and removal requirements for class actions. (41) Specifically, CAFA amended the diversity jurisdiction requirements under 28 U.S.C. [section]1332 to give federal courts original jurisdiction over class actions where the aggregate amount in controversy involves at least $5 million; where there are over 100 members of the class; and where any one plaintiff is diverse from any one defendant. (42) By relaxing the diversity jurisdiction requirements, Congress intended for CAFA to ensure that federal judges decide class actions of nationwide importance by making it easier for class actions to be filed in, or removed to, federal court. (43)

      Additionally, CAFA amended the 28 U.S.C. [section]1453 requirements that a defendant must meet to remove a case to federal court in the class action context. (44) Under CAFA, a class action may be removed to federal court regardless of whether a defendant is a citizen of the state in which the action was filed. (45) Furthermore, defendants no longer need the consent of all co-defendants before seeking removal to a federal forum. (46)

2. AFTERMATH OF CAFA: ITS IMPACT ON FORUM-SELECTION AND MANIPULATION of pleadings

   In the years following CAFA's enactment, preliminary data from the Federal Judicial Center ("FJC") suggests that CAFA has successfully shifted many nationwide class action lawsuits from state to federal courts. (47) However, the data indicates that although every circuit saw an increase in class actions originally filed in, and removed to, federal court, those increases varied dramatically. (48) Specifically, circuits considered relatively liberal on class certification, such as the Third, Ninth, and Eleventh Circuit Courts of Appeals, saw dramatic increases compared to the level of increases reported in more conservative circuits, such as the Fourth, Fifth, and Seventh Circuit Courts of Appeals. (49)

   As expected, the number of removals to federal court based on diversity jurisdiction increased after CAFA's enactment. (50) Specifically, the First, Second, Third, Seventh, Ninth, Eleventh, and D.C. Circuits saw increases, with diversity removals increasing by more than one hundred percent in the First, Ninth, and D.C. Circuits. (51) Notably, the Seventh...