CHAPTER 3 CAFA UPDATE: THE CLASS ACTION JURISDICTIONAL WORLD CLARIFIES
| Jurisdiction | United States |
(Dec 2008)
CAFA UPDATE: THE CLASS ACTION JURISDICTIONAL WORLD CLARIFIES
Jessica Miller
Kirstin Ives
O'Melveny & Myers LLP
Washington, D.C.
John Beisner is the Chair of firmwide Class Actions, Mass Torts, and Aggregated Litigation Practice for O'Melveny & Myers LLP in Washington, D.C. John focuses on the defense of purported class actions, mass tort matters, and other complex litigation in both federal and state courts. Over the past 25 years, he has been involved in defending numerous major U.S. and foreign corporations in over 600 purported class actions filed in the federal and state courts of 40 states at both the trial and appellate court levels. Those class actions have concerned a wide variety of subjects, including antitrust/unfair competition, consumer fraud, RICO, ERISA, employment/discrimination, environmental, product-related, and securities class actions. He has also handled numerous matters before the Judicial Panel on Multi-district Litigation, and has also been responsible for proceedings before various federal and state administrative agencies, particularly the National Highway Traffic Safety Administration and the Consumer Product Safety Commission.
Jessica Davidson Miller, a partner in O'Melveny's Washington, DC office and a member of the Class Actions, Mass Torts, and Aggregated Litigation Practice, joined the firm in 1996. Jessica has broad experience in the defense of purported class actions and other complex litigation with a focus on product liability matters and multidistrict litigation proceedings. She regularly appears in both state and federal courts and has drafted numerous appellate and Supreme Court briefs on behalf of individuals, corporations, and members of Congress. Jessica has been involved in several major federal legislative efforts and has written extensively on class action and tort reform issues. Jessica serves as a counselor to the U.S. Chamber of Commerce, the Civil Justice Reform Group, and other organizations dedicated to civil justice reform and played a major role in the passage of the Class Action Reform Act. Jessica also speaks frequently at seminars and symposiums on litigation-related issues and has spoken to the National Association of Manufacturers, American Insurance Association and many other industry groups about class action reform, other forms of aggregate litigation and state attorney general actions. Prior to joining O'Melveny, Jessica worked for U.S. Senators Bob Graham and Frank Lautenberg. From 1999-2000, she worked at the Federal Trade Commission as a staff attorney in the Office of General Counsel, focusing on appellate litigation.
Kirstin Ives is an associate in O'Melveny's Washington, DC office and a member of the Class Actions, Mass Torts, and Aggregated Litigation Practice.
Nearly four years ago, Congress enacted landmark legislation - the Class Action Fairness Act of 2005 ("CAFA") - in an effort to curb class action abuse and create more rational rules for federal jurisdiction over class action cases. The statute was historic in many respects: it expanded the contours of diversity jurisdiction, it allowed for appeals of certain jurisdictional remand orders, and it gave judges - for the first time - discretion to decide whether to exercise jurisdiction over certain class actions. There are strong signs that CAFA is achieving the intent of its framers:
• Class action filings in state courts - particularly in the notorious "magnet" courts that condoned class action abuses - have plummeted. In 2004, there were 82 class actions filed in Madison County, Illinois, the rural county that became an international emblem of litigation abuse in the United States. By contrast, in the two years following CAFA's enactment, only 16 class actions were filed in the county, an annualized decline of more than 90 percent.
• The most recent findings of the Federal Judicial Center ("FJC") on the impact of CAFA on the federal courts also indicate that CAFA is having its intended effect. The FJC recently reported an "increase in the number of diversity class actions filed as original proceedings in the federal courts in the post-CAFA period."1 At the same time, the FJC reports that diversity class action removals "have been trending downward since 2005."2 These results are strong indicators that CAFA is doing precisely what it was intended to do: create a federal forum for class actions of national import. Indeed, it appears plaintiffs are increasingly deciding to file their class actions directly in federal court, as resistance to federal jurisdiction under CAFA is largely futile.
• The FJC also reported that "[m]uch of the increase in total class action activity in the federal courts is driven by increases in filings of class actions based on federal question jurisdiction and thus not directly attributable to" CAFA - such as labor class actions.3 Thus, CAFA has not created more class action litigation - it has merely moved diversity class actions from state courts to federal courts, where judges are more likely to rigorously review proposed classes under Rule 23 of the Federal Rules of Civil Procedure. In accord with these findings, corporate counsel continue to report far fewer class actions overall since CAFA's enactment.
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• Federal courts have generally interpreted CAFA consistently with Congress's intent that the statute be interpreted liberally to permit more class actions to be heard in federal court. See S. Rep. 109-14 at 35 ("overall intent of these provisions is to strongly favor the exercise of federal diversity jurisdiction over class actions with interstate ramifications").
Below, we summarize the first three-plus years of CAFA jurisprudence, with a focus on ten key areas of CAFA-related litigation: (1) cases regarding the burden of proof in CAFA removals; (2) decisions addressing CAFA's amount-in-controversy provision; (3) interpretations of CAFA's exceptions; (4) CAFA jurisdiction over state attorney general class actions; (5) applicability of the "first-served defendant rule" in CAFA cases; (6) application of the statute to previously filed cases; (7) decisions regarding a federal court's jurisdiction under CAFA after the denial of class certification or amendment of the complaint to remove class allegations; (8) interpretation of CAFA's settlement provisions; (9) interpretation of CAFA's mass action provision; and (10) plaintiffs' creative attempts to circumvent CAFA.
A. Burden-Of-Proof Issues In CAFA Removals
Since the enactment of CAFA, federal courts have had to consider two different questions regarding burden of proof - the burden applicable to the initial requirements for removal and the burden applicable to invocation of CAFA's narrow exceptions. Regarding the first question, most courts have determined that, just as with other statutory removal requirements, the party seeking removal has the burden of proving the existence of federal jurisdiction.4 For example, in Brill, 427 F.3d 446, a Telephone Consumer Protection Act class action, the U.S. Court of Appeals for the Seventh Circuit considered the question of who bears the burden of proving CAFA's jurisdictional prerequisites. The court found that even though CAFA's legislative history may indicate to the contrary, the party seeking removal bears the burden of proof. As the court stated, "[t]he rule that the proponent of federal jurisdiction bears the risk of non-persuasion has been around for a long time. To change such a rule, Congress must enact a statute with the President's signature (or by a two-thirds majority to override a veto)." Id. at 448. Thus, although the statute's legislative history clearly envisioned "liberal" construction of removal requirements, see, e.g., S. Rep. No. 109-14, at 42 (2005), as reprinted in 2005 U.S.C.C.A.N. 3, 42 ("[i]f a purported class action is removed pursuant to these jurisdictional provisions, the named plaintiff(s) should bear the burden of demonstrating that the removal was improvident"), courts have been unwilling to change the status quo removal burden without explicit statutory language indicating Congress's intent to do so. 427 F.3d at 448 ("when the legislative history stands by itself, as a naked expression of `intent' unconnected to any enacted text, it has no more force than an opinion poll of legislators").
With regard to the burden of proving the applicability of CAFA's exceptions, district and appellate courts have reached the opposite view, consistently holding that the burden falls to the party seeking remand. The first appeals court to address the question, the U.S. Court of
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Appeals for the Eleventh Circuit, explained why the party seeking remand should have the burden of demonstrating the applicability of CAFA's exceptions. In Evans v. Walter Industries., Inc., 449 F.3d 1159, 1164 (11th Cir. 2006), the court began with a discussion of the fact that placing the burden on the party seeking to employ one of CAFA's exceptions properly allocates the burden to the party "most capable of bearing it"; that is, plaintiffs will have "better access to information about the scope and composition of that class" - the information necessary to prove the applicability of the local controversy exception. The court also found support for its decision in two decisions interpreting an analogous law, the FDIC removal statute, 12 U.S.C. § 1819(b)(2)(B). Under that statute, courts have held that once the Federal Deposit Insurance Corporation has established the prerequisites for removal, the burden of establishing the "state action" exception to federal jurisdiction shifts to the party objecting to removal. Id. (citing, inter alia, Lazuka v. FDIC, 931 F.2d 1530, 1538 (11th Cir. 1991) (after removal, burden "shifted to the plaintiff to show that no federal jurisdiction existed by satisfying the terms of subsection (D) of...
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