Class Action Fairness Act and the Federalization of Class Actions

Full title: Class Action Fairness Act and the Federalization of Class Actions

Court: United States District Court, D. Alaska

Date published: Sep 28, 2009

238 F.R.D. 504 (D. Alaska 2009)

Opinion

September 28, 2009

EDWARD F. SHERMAN ^_

_ Professor of Law, Tulane University School of Law. S.J.D. 1981, LL.B. 1962, Harvard Law School; M.A. 1962, 1967, University of Texas; A.B. 1959, Georgetown University. This is an updated and substantially expanded version of the article that appeared as "Edward F. Sherman, Class Actions After the Class Action Fairness Act of 2005, originally published in 80 TUL. L. REV. 1593-1616 (2006). Reprinted with the permission of the Tulane Law Review Association, which holds the copyright."

The Class Action Fairness Act of 2005 (CAFA)¹ is the most significant change in class action practice since the federal class action rule (Rule 23) was amended in 1966. That amendment created two new class action categories: a Rule 23(b)(2) class action for injunctive or declaratory relief against defendants who had acted on grounds applicable to the class, and a Rule 23(b)(3) class action for money damages on behalf of a grouping of persons who had a question of law or fact in common.² The former lead to the civil rights and institutional reform class actions of the 1970s and 1980s that resulted in significant changes in certain practices of both governmental institutions and private businesses.³ The latter lead initially to class actions based on federal laws such as antitrust, securities fraud, and employment discrimination, but, by the 1980s and 1990s, migrated to a broad spectrum of commercial, consumer protection, environmental, product liability, and mass tort cases.⁴ State class action rules generally mirrored the federal rule, and "entrepreneurial" class action lawyers increasingly filed class actions in state courts. In response to the ballooning of class actions, business interests began a campaign to limit class actions with a message reflected in a Fortune magazine headline: "Lawyers From Hell: Slip Up and Guys Like These Can Bankrupt Your Company."⁵

1 Pub.L. No. 109-2, 119 Stat. 4 (2005) (codified in scattered sections of 28 U.S.C, particularly § 1332.).

2 FED. R. CIV. P. 23(b)(2)-(3).

3 See Abram Chayes, The Role of the Judge in Public Law Litigation, 89 HARV. L. REV. 1281, 1284 (1976) (describing the emergence of "public law litigation" — such as school desegregation, employment discrimination, antitrust, securities fraud, corporate reorganizations, union governance, consumer fraud, and environmental management — that gave rise to a new model of pretrial and trial practice).

4 "[C]onsumer class actions have blossomed against practices in such industries as insurance, banking, credit cards, and telecommunications. . . . The most contentious arena for class actions today involves tort law, including mass accidents (like plane or railway crashes or collapse of a building), environmental disasters (like the escape of toxic chemicals into the air or water), and defective products (like asbestos, prescription drugs, appliances, vehicles, or computer hardware/software)."
Edward F. Sherman, American Class Actions: Significant Features and Developing Alternatives in Foreign Legal Systems, 215 F.R.D. 130, 135 (2003) (internal footnote omitted).

5 FORTUNE, Oct. 16, 1995, front cover.

CAFA, some six years in the making, ⁶ was originally directed at prominent abuses in class action practice such as unreadable notices to class members and settlements that resulted in large fees to attorneys with little benefit to class members. But these provisions, termed "The Consumer Class Action Bill of Rights," became less pressing due to court decisions, judicial oversight, ⁷ and 2003 amendments to the federal rules.⁸ Given these reforms, by 2005 the main thrust of CAFA was no longer practice abuses but alleged forum shopping. In recent years, federal courts had been perceived by both plaintiff and defendant lawyers as less sympathetic to class actions and to plaintiffs' cases than certain state courts. As federal court judges became more critical of class actions, class action attorneys increasingly filed in state courts. Businesses especially complained that an undue proportion of class actions were filed in certain "magnet venue" state courts (such as Madison County, Illinois, and certain Texas counties in the Rio Grande Valley) where the judges, usually elected, were more likely to certify a class action and the juries were likely to be more pro-plaintiff.⁹ In addition, corporations that do business in multiple states complained that they were subjected to national or multistate class actions in state courts that could thereby establish legal standards that would govern their activities throughout the country.¹⁰ These kinds of concerns led to focusing the legislation on expanding federal court "diversity jurisdiction" and defendants' right to remove state class actions to federal court.

6 See, e.g., Judiciary Committee Report on Class Action Fairness Act, S. REP No. 109-14 (2005); Judiciary Committee Report on Class Action Fairness Act, S. REP. No. 108-123 (2003); Class Action Litigation: Hearing Before the S. Comm. on the Judiciary, 107th Cong. (2002); Interstate Class Action Jurisdiction Act of 1999 and Workplace Goods Job Growth and Competitiveness Act of 1999: Hearing on H.R. 1875 and H.R. 2005 Before the H. Comm. on the Judiciary, 106th Cong. (1999); The Class Action Fairness Act of 1999: Hearing on S. 353 Before the Subcomm. on Administrative Oversight and the Courts of the S. Comm. on the Judiciary, 106th Cong. (1999); Class Action Jurisdiction Act of 1998: Hearing on H.R. 3789 Before the Subcomm. on Courts and Intellectual Property of the H. Comm. on the Judiciary, 105th Cong. (1998); S. REP. No. 106-420 (2000); H.R. REP No. 106-320 (1999).

7 See BARBARA J. ROTHSTEIN THOMAS E. WILLGING. MANAGING CLASS ACTION LITIGATION: A POCKET GLIDE FOR JUDGES (2005).

8 Amendments to the Federal Rules of Civil Procedure that became effective in December 2003, require, inter alia, that notices be written in plain language, and impose stricter rules for appointing class attorneys, awarding attorney's fees, and approving settlements. See FED. R. CIV. P. 23(d)-(h).

9 See Am. Tort Reform Ass'n, Judicial Hellholes 2005,http://www.atra.org/reports/hellholes.

10 A case often cited by proponents of CAFA was Avery v. State Farm Mutual Automobile Insurance Co., 746 N.E.2d 1242 (Ill.App.Ct. 2001), in which a trial court in Madison County, Illinois, certified a nationwide class of insureds challenging State Farm's practice of specifying non-OEM [original equipment manufacturer] parts on repair estimates and applied the Illinois Consumer Fraud Deceptive Business Practices Act extraterritorially to the entire class, resulting in a verdict of over a billion dollars. The verdict was ultimately reversed by the Illinois Supreme Court, holding that the act does not apply extraterritorially and that a nationwide class should not have been certified. 835 N.E.2d 801 (Ill. 2005).

I. EXPANSION OF FEDERAL COURT JURISDICTION

CAFA adopted a "minimal diversity" standard for federal court jurisdiction, allowing federal courts to hear class actions so long as any member of the plaintiff class is a citizen of a state different from that of any defendant.¹¹ This overturned the United States Supreme Court's venerable 1806 decision in Strawbridge v. Curtiss, which interpreted the federal "diversity" statute as requiring "complete diversity."¹² Advocates of CAFA complained that plaintiffs' counsel evaded federal jurisdiction in class actions by adding named plaintiffs or defendants based on their state of citizenship in order to defeat complete diversity.¹³ The new CAFA "minimal diversity" for class actions also requires that the matter in controversy exceeds $5,000,000.¹⁴ However, it provides that "the claims of the individual class members shall be aggregated" to determine the amount in controversy.¹⁵ It thus overrules previous Supreme Court precedents forbidding aggregation of the claims of the class members to satisfy the amount in controversy¹⁶ and requiring each class member (and not merely the class representatives) to satisfy the amount in controversy.¹⁷

11 Pub.L. No. 109-2, § 4(a)(2), 119 Stat. 4, 9 (2005) (amending 28 U.S.C. § 1332 by inserting (d)(1)). For CAFA case law developments, see CAFA Law Blog (McGlinchey Stafford PLLC),http://www.cafalawblog.com/.

12 7 U.S. (3 Cranch) 267, 267 (1806). The diversity statute is now located at 28 U.S.C. § 1332.

13 See James Wootten, President of the U.S. Chamber Inst. For Legal Reform, Testimony Before the ABA Class Action Task Force 2 (Apr. 8, 2002) (on file with author) ("To prevent removal, class counsel may include a named plaintiff that has the same citizenship as one of the defendants, or may name a local `straw defendant' (such as a local pharmacy in a suit against national pharmaceutical manufacturers) that has the same citizenship as one of the plaintiffs."). The holding in Supreme Tribe of Ben Hur v. Cauble, 255 U.S. 356, 41 S.Ct. 338, 65 L.Ed. 673 (1921), that only the citizenship of the named plaintiffs should be considered to determine diversity made it easier to invoke federal diversity jurisdiction. However, plaintiffs' attorneys seeking to keep a class action in state court could select a class representative who was a citizen of the same state as any defendant and thereby defeat diversity. Additionally, if the primary defendant were an out-of-state corporation, additional defendants might be joined who were citizens of the same state as the class representative (for example, a drug store or doctor in a product liability suit against a pharmaceutical manufacturer). Such joinder might in some cases be challenged as "fraudulent," but under the Uniform Commercial Code and other liability rules there can often be a valid claim against such joined parties even if the manufacturer were the primary defendant and the target deep pocket.

14 28 U.S.C. § 1332(d)(2).

15 28 U.S.C. § 1332(d)(6).

16 Snyder v. Harris, 394 U.S. 332, 89 S.Ct. 1053, 22 I.Ed.2d 319 (1969).

17 Zahn v. Int'l Paper Co., 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511 (1973).

Which party has the burden of proving the jurisdictional requisites (minimal diversity and $5 million amount in controversy) has been a hotly debated matter.¹⁸ The traditional rule is that defendants have the burden of proof to justify removal to federal court when there is a motion to remand. This is based on the principle that it is the defendant who is invoking federal court jurisdiction and that federal courts are courts of limited jurisdiction. CAFA does not address burden of proof, but there is language in the legislative history that indicates a congressional intent to shift the burden to the plaintiff.¹⁹ The Senate Committee report stated that "it is the intent of the Committee that the named plaintiff(s) should bear the burden of demonstrating that a case should be remanded to state court (e.g., the burden of demonstrating that more than two-thirds of the proposed class members are citizens of the forum state)."²⁰

18 See James M. Garner, Congressional Welcome to Federal Court — The Class Action Fairness Act: Has the Party Just Begun?, 809 TUL. L. REV. 1669, 1687-1690 (2006); Allan Kanner, Interpreting the Class Action Fairness Act in a Truly Fair Manner, 80 TUL. L. REV. 1645 (2006); ELIZABETH J. CABRASER RICHARD T. SEYMOUR, ANALYSIS. IMPLICATIONS, AND TEXT OF CLASS ACTIONS FAIRNESS ACT OF 2005 § 5.1[3][b] (expressing concern over the attempt to expand federal court jurisdiction "by the mere ipse dixit of a defendant, and that the plaintiff should not have the discovery necessary to determine whether jurisdiction is proper — not even a list of customers or employees, normally available with a computer inquiry lasting mere seconds — and must rely on whatever the defendant is willing to `stipulate.'").

19 S. REP. No. 109-14, at 42-44 (2005); 151 CONG. REC. H721, 727-30 (statement of Rep. Sensenbrenner); id. at 732 (statement of Rep. Goodlatte).

20 S. REP. No. 109-14, at 434. It went on to say:

Allocating the burden in this manner is important to ensure that the named plaintiffs will not be able to evade federal jurisdiction with vague class definitions or other efforts to obscure the citizenship of class members. . . . While plaintiffs undoubtedly possess some power to seek to avoid federal jurisdiction by defining a proposed class in particular ways, they lose that power once a defendant has properly removed a class action to federal court. Id.

An early decision, Berry v. American Express Publishing Corp., ²¹ reasoned that the absence of express language in the statute may have been based on "the Legislature's expectation that the clear statements in the Senate Report would be sufficient to shift the burden of proof." It said the burden was on the plaintiff opposing remand, although it found the $5 million amount in controversy was not satisfied here where the complaint did not seek recovery in excess of $5 million and the monetary value of the injunctive claims was uncertain. A few courts have similarly placed the burden on the plaintiff in reliance on the legislative history.²² As time has passed, however, many more courts have gone the other way.²³ The Seventh Circuit, in Brill v. Countrywide Home Loans Inc. ²⁴ found no support in the legislative history for placing the burden of establishing the requisites for CAFA jurisdiction was on the plaintiff, as opposed to the defendant who is invoking federal jurisdiction by removing, and a large number of cases have now taken this position.²⁵

21 381 F.Supp.2d 1118, 1122-23 (C.D.Cal. 2005).

22 See Natale v. Pfizer Inc., 379 F.Supp.2d 161, 168 (D.Mass. 2005); Harvey v. Blockbuster Inc., 384 F.Supp.2d 749, 752 n. 4 (D.N.J. 2005); Waitt v. Merck Co. 2005 WL 1799740, at 2* (W.D.Wash. 2005); In re Textainer Partnership Securities Litigation, 2005 WL 1791559, at 3* (N.D.Cal. 2005). See also Hunter Twiford, Anthony Rollo, John T. Rouse, CAFA's New Minimal Diversity Standard for Interstate Class Actions Creates a Presumption that Jurisdiction Exists, with the Burden of Proof Assigned to the Party Opposing Jurisdiction, 25 MISS.C. L. REV. 7 (2006/2007).

23 "A more reasoned approach to determining which party bears the burden of proof under CAFA has been adopted by a number of courts that have held that Congress' silence on the burden of proof means that it did not intend to change the burden of proving federal jurisdiction and that the burden remains with defendants when a motion to remand is filed." Ronie M. Schmelz. The Class Action Fairness Act of 2005: An Overview of CAFA and the Early Decisions, 744 PIL/Lit. 33 (July, 2006). See Schwartz v. Comcast, Corp., 2005 WL 1799414, at *7 (E.D.Pa. 2005) ("by making substantive changes with respect to the aggregation rule, but failing to express a concomitant change in the burden of proof, Congress implicitly acknowledged and adopted the longstanding rule that a removing defendant bears the burden of proof for establishing diversity jurisdiction").

24 427 F.3d 446, 448 (7th Cir. 2005) ("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 — less, really, as it speaks for fewer.").

25 See Blockbuster Inc. v. Galeno, 2006 WL 3775326 (2nd Cir. 2006); Morgan v. Gay, 471 F.3d 469 (3rd Cir. 2006); Miedema v. Maytag Corp., 450 F.3d 1322 (11th Cir. 2006); Abrego v. Dow Chemical Co., 443 F.3d 676 (9th Cir. 2006); cases cited in Seamus C. Duffy Michael P. Daly, The Class Action Fairness Act: The First Year in the New Class Action World, 07 CLASS ACTION LITIGATION 164, n. 73.

A. Exclusions

CAFA provides express exclusions for certain types of cases. First, there must be at least 100 class members for CAFA minimal diversity jurisdiction.²⁶ Second, excluded are class actions in which "the primary defendants are States, State officials, or other governmental entities against whom the district court may be foreclosed from ordering relief."²⁷ The reason for this exclusion is the Eleventh Amendment. The Senate report said it was necessary to prevent state actors from "dodging legitimate claims" by removing to federal court and then moving to dismiss on the ground that the Eleventh Amendment prohibits relief against a state in a federal court.²⁸

26 28 U.S.C.A. § 1332(d)(5)(B).

27 28 U.S.C.A. § 1332(d)(5)(A).

28 S. REP. NO. 109-14, at 42 (2005).

A suit brought by, rather than against, state actors is not excluded, although it must, of course, be a class action to allow removal under CAFA. In a consumer protection suit filed by a state attorney general on behalf of citizens, the defendant company removed under CAFA.²⁹ It argued that since an amendment that specifically excluded attorney general suits from CAFA was rejected by Congress, this parens patriae action by the attorney general on behalf of state citizens should be considered a class action under CAFA. The court remanded, finding that suits by an attorney general, whether parens patriae, representative, or enforcement actions, are not class actions for purposes of CAFA.

29 Harvey v. Blockbuster, Inc., 384 F.Supp.2d 749 (D N.J. 2005).

There are also exclusions for class actions involving only federal securities claims.³⁰ The reason is that the Securities Litigation Uniform Standards Act of 1998 already provides for exclusive federal-court jurisdiction over most federal securities fraud class actions and requires that federal law be applied.³¹ Thus expanded federal jurisdiction under CAFA was not needed and could cause problems as to which provisions govern. Finally, corporate or business governance claims under state law are excluded, ³² in recognition of the paramount state-court interest in such class actions.

30 28 U.S.C.A. § 1332(d)(9)(A) (C).

31 15 U.S.C.A. § 77p. See also S. REP. No 109-14, at 45.

32 28 U.S.C.A. § 1332(d)(9)(B).

B. Exceptions (Carve-Outs)

The minimal diversity standard would sweep most class actions into federal courts even if the state interest outweighed the federal interest in particular cases. Thus, the proposals and counter-proposals that characterized the CAFA legislative debate over a number of years focused on exceptions or "carve outs" that would permit class actions with a strong state interest to remain in state courts. The American Bar Association passed a resolution in 2003, based on the recommendation of its Task Force on Class Action Legislation, stating that in crafting exceptions there should be a "balance [between] legitimate state-court interests and federal-court jurisdictional benefits."³³ The Judicial Conference of the United States, in a 2003 letter to the chairs of the Senate and House Committees, stated that "minimal diversity" might be appropriate, but with "sufficient limitations and threshold requirements so that federal courts are not unduly burdened and states' jurisdiction over in-state class actions is left undisturbed."³⁴ However, the two exceptions in CAFA are considerably more restrictive than proposals made by those concerned about state jurisdictional interests.

33 The Resolution was passed by the ABA House of Delegates on February 3, 2003. The Report and Recommendation of the American Bar Association's Task Force on Class Action Legislation are available at http://www.abanet.org/classaction/ (last visited Nov. 1, 2006).

34 Letter from Leonidas Ralph Mecham, Sec'y, Judicial Conf. of the United States, to Orrin G. Hatch, Chair, Comm. on the Judiciary, United States Senate (Mar. 26, 2003), reprinted in 149 CONG. REC. S12876-12877 (daily ed. Oct. 20, 2003).

1. "Home State" Exception

For several years, the debate in Congress over the legislation focused on a "carve out" for class actions involving "in-state parties" based on the forum state's law. The exception was stated narrowly in the 2003 bill, providing that "minimal diversity" jurisdiction would not apply to any civil action in which "the substantial majority" of the class members and "the primary defendants" were citizens of the state in which the action was filed and the claims were "governed primarily by the laws" of that state.³⁵ The Senate Committee Report interpreted the term "substantial majority" as "virtually all members of the proposed class [using an example of `more than 99%'] are residents of a single State."<sup>36</sup> The term "primary defendants," on the other hand, would apply to all "defendants who are the real `targets' of the lawsuit — i.e., the defendants that would be expected to incur most of the loss if liability is found."³⁷

35 Class Action Fairness Act of 2003, H.R. 1115, 108th Cong. § 4(a)(2).

36 S. REP. No. 106-420, at 29 (2000).

37 d.

This proposed carve-out evolved into what is referred to as the "home state" exception in CAFA.³⁸ The "substantial majority" language was replaced with a definite standard — "two-thirds or more of the members of all proposed plaintiff classes in the aggregate" must be citizens of the forum state.³⁹ The earlier express requirement that the cause of action be based on the forum state's law was dropped, presumably because it is unnecessary; if an action were based on federal law, there would be federal court jurisdiction under "federal question," and thus CAFA minimal diversity" would not be needed.

38 "The purpose of this provision is to ensure that federal courts have jurisdiction over clearly interstate cases, while state courts retain exclusive jurisdiction over primarily local matters." John Beisner Jessica Davidson Miller, A Section-by-Section Review of the Class Action Fairness Act, 33 PRODUCT SAFETY LIABILITY REP. 234, 239-40 (2005).

39 Pub.L. No. 109-2, § 4(a)(2), 119 Stat. 4, 9 (2005) (amending 28 U.S.C. § 1332 by inserting (d)(3)).

a. Two-Thirds of Class Are Citizens

Whether two-thirds of the class members are citizens of the forum state involves a fact question that may not easily be answered since neither class counsel nor defendants would necessarily have information about the domicile of each class member.⁴⁰ That problem is exacerbated by the fact that this determination must be made as a threshold matter by a federal court to determine whether an attempted removal is subject to an exception. This may lead a class counsel who seeks to come under the "home state" exception to define the class as only including citizens of the forum state in order to avoid the risk of removal on the fact question of domicile. That would reduce flexibility in class definitions which often are not defined in terms of citizenship but can be more efficiently defined in terms, for example, of persons who purchased a product in the forum state or who were injured there.⁴¹

40 "For diversity purposes, citizenship means domicile; mere residence in the State is not sufficient. . . . A person's domicile is the place of `his true, fixed, and permanent home and principal establishment, and to which he has the intention of returning whenever he is absent therefrom. . . .' A change of domicile may be effected only by a combination of two elements: (a) taking up residence in a different domicile with (b) the intention to remain there." Mas v. Perry, 489 F.2d 1396, 1399 (5th Cir. 1974).

41 See, e.g., ROTHSTEIN WILLGING, supra note 7, at 7 ("For example, the class may consist of those persons and companies that purchased specified products or securities from the defendants during a specified period, or it may consist of all persons who sought employment with or who were employed by the defendant during a fixed period.").

Satisfying the two-thirds requirement, as with other elements of the exceptions, may depend heavily on which party has the burden of proof. Some courts have placed the burden on plaintiffs as to exceptions, as opposed to the basic jurisdictional requisites (minimal jurisdiction and $5 million in controversy). Again although the statute is silent, the Senate Report supports this view.⁴² However, the Senate Report was issued ten days after the act's passage, and courts have called use of such legislative history "to fill in the gaps caused by the statute's silence on the point" illadvised.⁴³

42 See S. REP. No. 109-14, at 44 (2005): "It is the Committee's intention with regard to each of these exceptions that the party opposing federal jurisdiction shall have the burden of demonstrating the applicability of an exemption."

43 Lao v. Wickes Furniture Co., 2006 WL 2879763, at *4 (C.D.Cal. 2006), citing Abrego v. Dow Chemical Co., 443 F.3d 676, 683 (9th Cir. 2006);

Ruling on this question as a matter of first impression, the Eleventh Circuit, in Evans v. Walter Industries, Inc., ⁴⁴ determined that the burden of proof should be on the party seeking to avail itself of an express statutory exception to federal jurisdiction. In a class action against 18 in-state defendants who operated manufacturing facilities that released waste over an 85-year period, the court found that the plaintiffs had not met their burden of proving that two-thirds of the class were from the state.⁴⁵ It found insufficient an affidavit by plaintiff's attorney that of more than 10,000 class members she interviewed, 93.8% were state residents, saying that it was not shown how the interviewees were selected.⁴⁶

44 449 F.3d 1159, 1164-65 (11th Cir. 2006).

45 The "local controversy," rather than the "home state," exception was involved in this case, but both have the two-thirds citizenship requirement. Id.

46 Id. at 1166. But see Preston v. Tenet Healthsystem Memorial Medical Center Inc., 2006 WL 3396171 (E.D.La. 2006) (in class action against hospital arising from deaths and injuries to patients after Hurricane Katrina, evidence that 97% of patients were citizens of forum state found sufficient, even under 5th Circuit precedent imposing burden on plaintiff, to satisfy the "local controversy" and "home state" exceptions, and exercising discretion not to remand because a distinctly local controversy).

A similarly harsh application of burden of proof prevented use of the "local controversy" exception in Musgrave v. Aluminum Company of America. ⁴⁷ In this action for polluting on behalf of former mine workers, adjoining landowners, and persons who worked or lived near the site, remand was denied on the ground that there was insufficient evidence of two-thirds citizenship.

47 2006 WL 1994840 (S.D.Ind. 2006)

However, in contrast, a California federal district court in Lao v. Wickes Furniture Company ⁴⁸ found that the exceptions are "part and parcel" of the jurisdictional definition in CAFA, and therefore the burden of proof is on defendants. The issue there was not the citizenship of the class members, but of an in-state company defendant whose joinder was the basis for the "local controversy" exception (which will be discussed shortly). The court found that California was the "principle place of business" of the corporation⁴⁹ which, although it operated furniture stores in five states, had substantial facilities in California. At this point there have not been many cases on the burden of proof issue as to exceptions, but it clearly can make a difference as to such difficult factual elements as citizenship.

48 2006 WL 2879763 (C.D.Cal. 2006).

49 See 28 U.S.C. § 1332(c)(1) ("a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business").

b. Primary Defendants are Citizens

A further question is who is considered a "primary defendant." That term is not defined in the statute. It would seem that defendants seeking to remove would want to label any non-resident defendant as "primary," while plaintiffs would want to call such defendant (joined perhaps because it has some potential liability or might be considered a necessary party⁵⁰) nonprimary. But this conclusion becomes complicated because in order to disprove the "local controversy" exception, ⁵¹ defendants may maintain that "significant relief" can only be obtained against a non-resident and that the resident defendant that is sued is not a primary defendant. The interconnection of the two exceptions is a bewildering aspect of the few court decisions concerning them.⁵²

50 See FED R. CIV PROC. 19(a) (b).

51 See infra notes 55-73 and accompanying text.

52 See Gregory P. Joseph, Federal Class Action Jurisdiction After CAFA, Exxon Mobil and Grable, 8 DEL. L. REV. 157, 171 (2006):

Presumably a defendant who is "significant" in the specified ways need not be a "primary defendant," or the drafters would simply have used that phrase again. However, the converse would not appear to be true. A "primary defendant" probably must satisfy one or both of the "significant" criteria — that is, either be a deep pocket or a principal actor. In other words, "significan[ce]" is a prerequisite to "primary" status but is not necessarily sufficient to satisfy it.

Given the fluidity of the undefined phrases characterizing defendants, the plaintiffs' selection of legal theories and defendants is as important as class definition. One could imagine, for example, a plaintiff suing only in-state corporate executives who have insurance and indemnification rights — and suing them only under insurable and indemnifiable theories — in an effort to avoid naming an out-of-state corporation because, if sued, the corporation would be a "primary defendant" and lead to the loss of a state forum.

Some courts have viewed the "primary defendant" requirement as referring to those who may be "directly liable," as opposed to only "indirectly," "vicariously," or "secondarily liable."⁵³ The Senate Committee Report spoke of those who are "real targets" and would incur "most of the loss."⁵⁴ Under that standard, a class action based on a deceptive trade practice against an in-state insurance agent and his out-of-state insurance company would not satisfy the exception if the insurance company were the real target and would incur most of the loss. The "most of the loss" test can be difficult to apply at the beginning of the suit. If the defendants would be jointly liable, the plaintiff would seem more likely to enforce a judgment against an out-of-state defendant that is a deep pocket. However, a number of factors, such as ease of enforcement and uncertainties and changes in the parties' relative wealth may affect that decision.

53 See Kearns v. Ford Motor Co., 2005 WL 3967998, at *7-8 (C.D.Cal. 2005); Joseph, supra note 52, at 170.

54 S. REP. No. 106-420, at 29 (2000).

The policy underlying the "home state" exception is to allow genuinely local suits stay in state court but prevent plaintiffs from suing an out-of-state defendant against whom there is a genuine claim and likelihood of substantial recovery. When the in-state defendant is an individual who might be judgment-proof, the out-of-state "deep pocket" would generally be a primary defendant. But take the case of a class action on behalf of instate class members based on pollution from an in-state factory against the in-state corporation that operates the factory and its out-of-state parent corporation. Whether the parent corporation is the real target that would incur most of the loss may require inquiry into the relative legal liability of the corporations among themselves and whether recovery of a judgment would be more likely against the in-state company. Because of the difficulty of determining this upon a motion to remand, which party bears the burden of proof often becomes critical.

2. "Local Controversy" Exception

This exception is actually a variation of the "home state" carve-out that relaxes the requirement that all primary defendants be from the forum state. For that reason, plaintiffs have tended to rely on this, rather than the home state, exception. It provides that a district court shall decline to exercise "minimal diversity" when "greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed" and

1. at least one defendant is a defendant from which "significant relief" is sought, whose conduct forms a "significant basis" for the claims, and who is a citizen of the state in which the action was filed, and

2. "principal injuries" resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was filed; and no other class action asserting similar factual allegations against any of the same defendants has been filed in the preceding three years.⁵⁵

55 Pub.L. No. 109-2, § 4(a)(2), 119 Stat. 4, 10 (amending 28 U.S.C. § 1332 by inserting (d)(4)).

A number of these terms are neither defined nor terms of art, and there is no definitive legislative history to define them — "significant relief," "significant basis," "principal injuries," and "similar factual allegations." They represent an attempt to insure that at least one defendant and the principal injuries are closely connected to the forum state. The Judicial Conference had noted that "an insistence that all primary defendants maintain formal in-state citizenship is too limiting."⁵⁶ Alternative proposals were made to remove the requirement that all primary defendants be citizens of the forum state.⁵⁷ However, these were rejected by CAFA proponents, reflecting their primary concern of protecting out-of-state defendants from state-court class actions.

56 Letter from Leonidas Ralph Mecham to Orrin G. Hatch, supra note 34.

57 See Press Release, Patrick Leahy, U.S. Senator, Class Action Fairness Act, S. 2062 (July 6, 2004), available at http://leahy.senate.gov/press/200407/070604.html. The Senator stated:

This bill continues to deprive citizens of the right to sue on state law claims in their own state courts if the principal defendant is a citizen of another state, even if that defendant has a substantial presence in the plaintiffs' home state, and even if the harm done was in the plaintiffs' home state. I understand that Senator Breaux intends to offer an amendment to keep these in-state class actions in state court.

Id.

The task then became how to identify characteristics that demonstrate a significant state-court interest without making an exception based on no more than a defendant's having minimum contacts with the forum state. If just having an office or distribution center in the state, or having other "minimum contacts" that would be sufficient for personal jurisdiction, were enough, the exception would often apply whenever a national corporation is joined as a defendant. The exception could thus swallow the rule. To avoid this, the proponents of CAFA put in the two requirements for the carve-out.

a. Significant Relief

The first is that "significant relief" must be sought against a defendant that is a citizen of the forum state. A suit solely against an out-of-state corporation that operates a polluting factory in the state, for example, would not satisfy the requirement. However, if an in-state corporation that manages the factory, or plays a significant role in its operation relating to the pollution, is also joined as a defendant, that would trigger the exception. Would an action on behalf of forum-state citizens who purchased a defective product manufactured by an out-of-state corporation satisfy the exception if a local seller were joined? The answer depends on whether "significant relief" is sought against the seller whose conduct forms a "significant basis" for the claims.

Some courts have focused on whether the in-state defendant is a "deep pocket" for determining if it is subject to "significant relief." In Robinson v. Cheetah Transportation, ⁵⁸ a federal magistrate determined that relief against an individual who is not likely to have substantial assets was not "significant." This was a class action filed on behalf of all persons and businesses affected by the closure of a bridge that was struck by a tractortrailer. The essentially in-state class sued the driver (who was alleged to be a citizen of the state where suit was filed), as well as the vehicle owner, the insurer, and a transportation company and railroad that were involved in the tractor-trailer operation, all of whom were non-citizens. On plaintiffs' motion to remand, the court ruled that although the driver's "alleged negligence may have substantially contributed to the class members' damages, . . . it does not follow that the class members seek significant relief from him. With an amount in controversy of at least $5,000,000, the plaintiffs will seek most of that relief from those who are capable of paying it: the corporate defendants."⁵⁹ The court's finding was also influenced by the fact that it found plaintiff bore the burden of proof, and the plaintiff had thus far not executed service of process on the deriver.

58 2006 WL 468820 (W.D.La. 2006).

59 Id. at * 4. It cited a Senate report describing a products liability class action suit on behalf of Florida residents against an out-of-state automobile manufacturer and a few in-state dealers as not involving an in-state defendant from whom significant relief was sought. The report stated: "Even if the plaintiffs are truly seeking relief from the dealers, the relief is just small change compared to what they are seeking from the manufacturers." S. REP. NO. 109-14, at 40 (2005). "[W]hether a putative class seeks significant relief from an in-state defendant," the court said, "includes not only an assessment of how many members of the class were harmed by the defendant's actions, but also a comparison of the relief sought between all defendants and each defendant's ability to pay a potential judgment." Id. at *3.

If "significant relief" is not considered to be sought against a truck driver who may be judgment proof, what about a. large in-state company charged with polluting? In Evans v. Walter Industries, Inc., ⁶⁰ a class action was brought on behalf of people who lived in and around Anniston, Alabama against 18 manufacturing facilities for polluting over an 85-year period. We have already discussed this court's determination that the "two-thirds residency" requirement was not met despite a survey showing that 93.8% were in-state residents, ⁶¹ but it went on to treat the "significant relief" criterion in an equally narrow fashion. It found the plaintiff had failed to show that an in-state defendant, U.S. Pipe, "played a significant role in the alleged contamination, as opposed to a lesser role, or even a minimal role."⁶² U.S. Pipe had operated two plants, one which closed in 1951 and one which operated until 2003 but was south of the area occupied by most of the class members. Other defendants had operations much nearer, the court said, "suggesting that U.S. Pipe's liability might not be significant compared to other defendants, and that the conduct of U.S. Pipe might not form a significant basis for the claims of the class."⁶³ This seems a curious determination of merits issues at a point when there has been no discovery, requiring plaintiff to prove the comparative responsibility of a large company in order to demonstrate that significant relief is sought against it. This seems an unduly narrow interpretation of the exception.

60 449 F.3d 1159 (11th Cir. 2006).

61 See supra text accompanying note 46.

62 449 F.3d at 1167.

63 Id.

The emphasis on comparing the relief sought from an in-state defendant with that of all the defendants was also evident in Kearns v. Ford Motor Company. ⁶⁴ The plaintiff brought a class action on behalf of persons who had purchased "Certified Pre-Owned" vehicles against the sponsor of the program, Ford, and a local Ford dealer (and other in-state Ford dealers named as Doe Defendants) for inflating the prices through misleading advertising and representations. Placing the burden of proof on the plaintiff, the court found that "the relief sought from Ford will dwarf the relief sought from each individual dealer."⁶⁵ Plaintiff argued that the relief sought against the named local dealer was "not inconsequential" since restitution and disgorgement of profits was sought. The court still found it not "significant" because it "must be measured with respect to that sought by the entire class."⁶⁶

64 2005 WL 3967998 (C.D.Cal. 2005).

65 Id. at *9.

66 Id. at *10.

Furthermore the court found that although "the conduct of dealers as a group forms a significant basis for the claims, this is not true of any single dealer" like the named in-state defendant.⁶⁷ It cited an example given in the Senate Committee report of a consumer fraud class action alleging that an out-of-state insurance company misrepresented its policies, and a local agent was named as a defendant. The report said the agent would have had contact with only some of the class members and thus would not be a person from whom "significant relief" would be sought.⁶⁸ This conclusion might be correct if the local agent did not play a central role in the overall claims and was not likely to be a deep pocket for recovery, but the rationale based on lack of no contact with all class members is questionable. Whether the instate defendant had contact with all the class members could be relevant to class certification, ⁶⁹ but, as apparently was the case in Kearns, allegations of joint action by Ford and its dealers would satisfy the requirement for certification. If the dealer was central to the joint action, and there was a prospect of obtaining significant damages against it, failure to have contact with all class members would not seem to prevent a finding that significant relief was sought against it.

67 Id. at *ll.

68 S. REP. No. 109-14, at 40 (2005).

69 See La Mar v. H B Novelty Loan Co., 489 F.2d 461 (9th Cir. 1973) (finding a lack of "typicality" necessary for certification where the plaintiff class representative did not have a contractual relationship with all the defendants unless "the injuries are the result of a conspiracy or concerted schemes between the defendants" or the defendants "are juridically related"). However, this is not an exact analogy to the Kearns case where the objection was that the in-state defendant did not have contact with all the plaintiff class members.

b. Significant Basis

The "local controversy" exception requires not only that "significant relief" be sought against the in-state defendant, but that the defendant's conduct forms a "significant basis" for the claims. Some courts have particularly looked to whether the relief would have a significant impact outside the state. Eakins v. Pella Corporation ⁷⁰ was a deceptive trade practice and product liability suit on behalf of a class of North Carolina residence owners against the Iowa manufacturer of their windows and a North Carolina distributor (one of 95 distributors around the country). In finding the "local controversy" exception inapplicable, the court considered "(1) whether the product was sold outside of the locality; (2) whether the injury incurred was specific to the locality; (3) whether the class as a whole seeks relief against the local defendant."⁷¹ Since Pella is a worldwide distributor, it found that the windows were not sold exclusively in North Carolina, the injuries were not specific to North Carolina, and the class as a whole did not have a cause of action against the local distributor. The court cited the Senate Report for the broad proposition that in products liability cases "the conduct of a retailer such as an automobile dealer does not form a significant basis for the claims of class members."⁷²

70 2006 WL 2930110 (E.D.N.C. 2006).

71 Id. at *2.

72 Id.

c. Principal Injuries Incurred in the State

There is an additional requirement that the "principal injuries" resulting from the alleged conduct or any related conduct of each defendant were incurred in the state. This looks to how the class members are affected within the state. It seems to be related to the "significant basis" requirement which, however, requires a causal connection between the in-state defendant's conduct and the claims, while "principal injuries" looks to the geographical location of the injuries. This requirement would seem to be satisfied in a pollution class action if the pollution occurred in the state or in a product liability action if the class members purchased the product and used it in the state, either suffering personal injuries or economic loss there.

One of the principal drafters of the act, John Beisner, provides the following examples of the "local controversy" exception:

[A] class action by patients against a local nursing home could remain in state court even though the plaintiffs have also sued the nursing home's out-of-state parent corporation. Similarly, a class action involving a local environmental spill could remain in state court, even if plaintiffs sue both the in-state company that runs the plant and an out-of-state chemical company that allegedly mislabeled the product.⁷³

73 Beisner Miller, supra note 38, at 240.

3. Discretionary Jurisdiction

There is a further category in which federal district courts may decline jurisdiction — when more than one-third, but less than two-thirds, of the class members and the "primary defendants" are citizens of the state in which the action was originally filed.⁷⁴ Broader proposals that district courts be given discretion to remand any case upon weighing factors relating to whether the state-court interest outweighed the federal interest were rejected in the final act. Thus even with this discretionary carve-out, the citizenship of the class members (i.e., at least one-third must be from the forum state) is critical. The carve-out would be unavailable in a multistate or nationwide class action in a state court in a state with less than one-third of the class members (and obviously in target venues that fall in that category), even if the primary defendants are citizens of the forum state.

74 Pub.L. No. 109-2, § 4(a)(2), 119 Stat. 4, 9-10 (amending 28 U.S.C. § 1332 by inserting (d)(3)).

In exercising this discretionary jurisdiction, courts must consider a number of listed factors such as: whether the asserted claims involve matters of national or interstate interest; whether the claims will be governed by the laws of the state in which the action was filed; whether the action was "pleaded in a manner that seeks to avoid federal jurisdiction"; whether the action was filed in a forum with a "distinct nexus" to the class members, the harm, or the named defendants; whether the number of citizens of the forum state in all proposed classes is "substantially larger" than the number of citizens from other states and citizens of other states are dispersed among a "substantial number" states; and whether during the three years before filing, one or more other class actions asserting similar claims were filed.⁷⁵

75 Id.

This was an attempt to give courts discretion to weigh the state versus federal or interstate interests, providing a group of factors to be balanced, reminiscent of the factors weighed by federal courts in ruling on abstention.⁷⁶ However, again there are undefined terms that may have to be resolved in future litigation. Are matters of "national interest" limited to the functioning of the national government or to broader federal interests? Would there be "interstate interests" simply by virtue of having one-third to two-thirds of the class members from other states? Has an action been improperly pleaded to avoid federal jurisdiction if intentionally limited to less than $5 million or to satisfy one of the exceptions? What if the "distinct nexus" runs to only one of those listed — class members, harm, or named defendants — and thus the nexus could be conflicting? What would be a "substantial" number of class members from different states? How "similar" must earlier suits have been? Would an overlap of some claims be enough? What if the classes are defined differently?⁷⁷

76 See, e.g., Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971) (permitting federal courts to abstain in equity actions, such as for declaratory or injunctive relief, if warranted by notions of comity); Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976) (allowing a federal court to abstain in the interests of "wise judicial administration" only if warranted by "exceptional circumstances").

77 Some of these questions are raised in CABRASER SEYMOUR, supra note 18, § 5.1[3][b] (2005).

C. Mass Actions

CAFA treats a "mass action" — defined as a civil action "in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that plaintiffs' claims involve common questions of law or fact" — as a class action.⁷⁸ One impetus for this fiction⁷⁹ was that Mississippi did not have class actions, but large numbers of cases could be joined and treated in many ways as class actions.⁸⁰ A mass action must meet the same jurisdictional requirements as class actions (i.e., minimal diversity and more that $5 million in controversy) and is subject to the same exclusions and exceptions.⁸¹ Plaintiffs must individually have $75,000 amount in controversy.⁸² A mass action, unlike a class action, must be a claim for "monetary relief," and cannot be transferred under the Multidistrict Litigation statute, ⁸³ without the consent of a majority of the plaintiffs.⁸⁴ Several types of suits are excepted.⁸⁵

78 28 U.S.C. § 1332(d)(ll)(B)(i).

79 For a discussion of the useful role fictions can play in the law, see LON FULLER, LEGAL FICTIONS (1967).

80 See Howard M. Erichson, Mississippi Class Actions and the Inevitability of Mass Aggregate Litigation, 24 Miss. COLL. L. REV. 285 (2005). The Multiparty, Multiforum, Trial Jurisdiction Act of 2002, 28 U.S.C. § 1339, provided a jurisdictional precedent for CAFA by extending federal jurisdiction over combined cases arising from disasters that caused the death of more than 75 persons.

81 28 U.S.C. § 1332(d)(11)(A).

82 28 U.S.C. § 1331(d)(ll)(B).

83 28 U.S.C. § 1407.

84 28 U.S.C. § 1332(d)(11)(C)(i).

85 28 U.S.C. 1332(d)(11)(B)(ii) (providing exceptions when "(I) all of the claims in the action arise from an event or occurrence in the State in which the action was filed, and that allegedly resulted in injuries in that State or in States contiguous to that State; (II) the claims are joined upon motion of a defendant; (III) all of the claims in the action are asserted on behalf of the general public (and not on behalf of individual claimants or members of a purported class) pursuant to a State statute specifically authorizing such action; or (IV) the claims have been consolidated or coordinated solely for pretrial proceedings.").

II. SUPPLEMENTARY JURISDICTION AFTER EXXON V. ALLAPATTAH

Four months after CAFA took effect, the Supreme Court decided the long-awaited cases on the scope of supplementary jurisdiction in class actions and joinder. Exxon Mobil Corp. v. Allapattah Services, Inc. was a class action on behalf of gasoline dealers against their gasoline supplier for breach of their sales agreement.⁸⁶ The district court entered judgment only for the class representatives because the class members did not individually satisfy the $75,000 amount-in-controversy. The Supreme Court held that the supplemental jurisdiction statute⁸⁷ permits exercise of diversity jurisdiction over additional plaintiffs who fail to meet the amount-in-controversy requirement, as long as other elements of diversity jurisdiction are present and at least one named plaintiff satisfies the requirement. It thus ruled that the supplemental jurisdiction statute overruled Zahn v. International Paper Co., ⁸⁸ the 1973 decision which had held that every member of a class must satisfy the amount in controversy requirement if the claims are not joint.

Under Zahn, there was no federal court jurisdiction over class actions where the class members' claims did not meet the amount-in-controversy. This meant that most consumer class actions could not be brought in, or removed to, federal court, a situation that was pleasing to plaintiffs' class attorneys who might want to remain in state court. One of the principal purposes of the CAFA jurisdictional provisions was to overrule Zahn. Now that has also been accomplished by Allapattah which went one step farther and applied supplemental jurisdiction to joinder of multiple parties as well.⁸⁹ Thus plaintiffs' counsel who simply join a number of individuals with similar claims, rather than using a class action, can not avoid removal due to Allapattah. In addition, the provision of CAFA that treats "mass actions" as class actions for jurisdictional purposes⁹⁰ also provides federal jurisdiction over large joined claims. So now there are multiple sources for federal court jurisdiction over class actions and joined actions.

89 In a case consolidated and decided with Allapattah, Ortega v. Star-Kist Foods, Inc., the Court held that supplemental jurisdiction would apply to claims of family members for mental distress on seeing their daughter injured when opening a can of tuna which were joined with the daughter's claim for her injuries, even though the family members' claims did not satisfy the amount-in-controversy.

90 28 U.S.C. § 1332(d)(11).

III. EXPANDED REMOVAL

The counterpart to the expanded original jurisdiction of federal courts provided by CAFA are provisions allowing defendants to remove class actions that satisfy minimal diversity. CAFA will probably be invoked more often by defendants in removing a class action filed in a state court than by plaintiffs filing originally in a federal court. CAFA relies on the existing removal procedures (which continue to apply to cases not covered by CAFA), but with a few very significant changes.

First, § 1441(b) permits removal in an action based on other than federal question jurisdiction only "if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought."⁹¹ In contrast, CAFA permits removal of class actions falling within its scope "without regard to whether any defendant is a citizen of the State in which the action is brought."⁹²

91 28 U.S.C. § 1441(b).

92 28 U.S.C. § 1453(b).

Second, CAFA allows removal of class actions "by any defendant without the consent of all defendants,"⁹³ replacing the rule that in actions involving multiple defendants, all must be willing to remove.⁹⁴ This avoids the possibility that even one defendant can prevent removal and obviates an opportunity for plaintiffs to join a defendant who might be willing to break with other defendants as to removal, or to negotiate favorably with a defendant who would oppose removal.

93 Id.

94 See 14C CHARLES A. WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE: JURISDICTION AND RELATED MATTERS § 3731, at 258 (3d ed. 1998).

Third, CAFA overturns as to class actions⁹⁵ the requirement that actions must be removed within one year.⁹⁶ Under the one-year rule (no longer applicable to class actions that fall under CAFA), once a year has passed plaintiffs can amend a complaint which would not be removable (for example, complete diversity is lacking or a defendant is sued in its own state); removal would no longer be available even if the complaint as amended would provide grounds for federal jurisdiction.⁹⁷ The requirement that removal be sought within thirty days after filing the complaint remains for cases under CAFA.⁹⁸ However, if a complaint in a class action is amended after one year, making the suit now removable (for example, dismissing a defendant who established an exception under CAFA) removal will now be available.

95 28 U.S.C. § 1453(b).

96 28 U.S.C. § 1446(b) provides that "a case may not be removed on the basis of jurisdiction conferred by section 1332 of this title more than 1 year after commencement of the action."

97 28 U.S.C. § 1446(b), second paragraph.

98 28 U.S.C. § 1446(b) allows removal if notice is given within thirty days after receipt "through service or otherwise" of an amended pleading or paper from which it may be ascertained that the case has become removable. 28 U.S.C. § 1446(b). In a post-CAFA case, notice of removal filed within 30 days after the filing of the complaint was found sufficient even though defense counsels' applications for pro hac vice admission were not acted on within the 30-day period. Issa v. Priority Transportation, LLC, 2006 WL 304028 (N.D.Ind. 2006).

IV. DISCRETIONARY APPELLATE REVIEW

A court of appeals "may accept" an appeal from an order of the district court granting or denying a motion to remand to the state court.⁹⁹ An appeal must be made "not [more] than 7 days after entry of the order."¹⁰⁰ If the court of appeals accepts the appeal, it must render judgment no later than sixty days after it was filed (with the possibility of extensions), but if it does not do so, "the appeal shall be denied."¹⁰¹ There was obvious concern that if motions for remand, whether granted or denied by the district court, could be appealed, there could be a lengthy delay in the progress of class actions. So a tight time table requiring notice of appeal within seven days and an appellate court judgment within sixty days was added. The provision that if the circuit court does not act within sixty days, the appeal is denied is highly protective of the district court's ruling. The appellate jurisdiction itself is discretionary with the circuit court, and furthermore, it can avoid even having to apply that discretion by not acting within sixty days.

V. THE COMMENCEMENT PROBLEM

A large number of class actions were filed in state courts shortly before the effective date of CAFA on February 18, 2005. The Act applies to "any civil action commenced on or after the date of enactment."¹⁰² The argument of some defendants that a case is "commenced" if removed to federal court after February 18, 2005, rather than when it was filed in the state court, has been uniformly rejected by the courts. "Commenced," they hold, refers to when a case is filed in state court.¹⁰³ However, in some states, an action is not considered to be commenced until the filing fee is paid, the clerk determines the complaint is procedurally sufficient, or service is made on defendants. If such acts are not performed until after February 18, 2005, CAFA will apply.¹⁰⁴

102 Pub.L. No. 109-2, § 9 (set out as note under 28 U.S.C.A. § 1331).

103 See, e.g., Pritchett v. Office Depot Inc., 420 F.3d 1090, 1095-97 (10th Cir. 2005); Kundsen v. Liberty Mut. Ins. Co., 411 F.3d 805, 806 (7th Cir. 2005); Natale v. Pfizer Inc., 424 F.3d 43, 44 (1st Cir. 2005).

104 Schorsch v. Hewlett-Packard Co., 417 F.3d 748, 750-51 (7th Cir. 2005); Dinkel v. General Motors Corp., 400 F.Supp.2d 289, 294 (D.Me. 2005) (under the applicable state law, suit was not considered to be commenced as to class action defendants who were not served within 90 days of filing of action until they were actually served); cases cited in Duffy Daly, supra note 25, at 164, n. 3.

The Federal Rules of Civil Procedure take a liberal view of amendments, ¹⁰⁵ and cases are often amended during the course of litigation. This is particularly true of class actions in which the named class representatives, defendants, class definition, causes of action, and remedies sought may be amended over an extended period prior to class certification. Thus, after CAFA, courts have frequently been called on to determine whether such amendments constitute "commencing" a new suit which is subject to removal under CAFA.

105 FED R. CIV P. 15(a) (after a responsive pleading is filed "a party may amend the party's pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires" (italics added)).

A. Test of Relation Back of Amendments Under Rule 15(c)

In determining whether a later amendment of a complaint that was filed before the effective date of CAFA is a new action, the Seventh Circuit in Knudsen v. Liberty Mutual Insurance Company ¹⁰⁶ adopted the test set out in Rule 15(c) for "relating back" amendments made after the Statute of Limitations has run. Rule 15(c) allows a pleading to relate back to the original date of filing if "the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading."¹⁰⁷ The "same transaction or occurrence" test has been interpreted as a requirement that the opposing party have been on notice by the original pleading that the suit could involve the altered or expanded amendment.¹⁰⁸ The notice should provide a sufficient warning to the defendant that it should not forgo broader investigation of the facts that might encompass the amended claim and from indulging the repose interest provided by the Statute of Limitations.¹⁰⁹ Thus, under the notice test, a court would have to ask whether the claim raised in the amendment could have been anticipated from the original pleading, or whether it constituted such a new claim as to constitute a different cause of action not permitted to relate back to avoid the Statute of Limitations.

106 411 F.3d 805 (7th Cir. 2005).

107 FED. R. CIV. P. 15(c)(2). When an amendment changes the party or the naming of the party against whom a claim is asserted, it will relate back if it arises out of the same transaction or occurrence and that party "(A) has received such notice of the institution of the action that the party will not be prejudiced in maintaining a defense on the merits, and (B) knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against the party."

108 See Boatmen's National Bank of Belleville v. Direct Lines, Inc., 167 Ill.2d 88, 102, 212 Ill.Dec. 267, 656 N.E.2d 1101, 1107 (1995) (an amendment relates back when the original complaint "furnished to the defendant all the information necessary . . . to prepare a defense to the claim subsequently asserted in the amended complaint.")

109 "Rule 15 allows a party to amend despite the running of an applicable state statute of limitations when parties are sufficiently on notice of the facts and claims that gave rise to the proposed amendment. . . . The purpose of the statute of limitations is to prevent stale claims. The rationale of allowing an amendment to relate back is that once a party is notified of litigation involving a specific factual occurrence, the party has received all the notice and protection that the statute of limitations requires. . . . While the Rules are intended to govern procedure in federal court, they are not intended to undermine the repose interests advanced by state statutes of limitations." 3 MOORE's FEDERAL PRACTICE § 15.19[1], at 15-83-4 (3d ed. 2006).

Knudsen involved a change in the class definition, and the Seventh Circuit rejected defendant's argument that "any substantial change" in the definition would "commence a new case."¹¹⁰ It saw the test as whether the amendment relates back under Rule 15(c) or rather is "sufficiently independent of the original contentions that it must be treated as fresh litigation."¹¹¹ It concluded that the change in class definition was not a new claim. It added, however, in what has since been much argued over, that "a new claim for relief (a new `cause of action' in state practice), the addition of a new defendant, or any other step sufficiently distinct that courts would treat it as independent for limitations purposes, could well commence a new piece of litigation" under CAFA.¹¹²

110 411 F.3d at 807.

111 Id.

112 Id.

A large number of circuits have now adopted the Rule 15(c) test for determining when an amendment commences a new action for purposes of CAFA. That approach, however, has been challenged from both plaintiff and defendant perspectives. Plaintiffs argue that the Rule 15(c) notice test is too strict, intended to insure, in keeping with Erie Railroad v. Tomp-kins, ¹¹³ that the state's substantive Statute of Limitations not be undermined by the federal procedural policy of liberal amendment unless it can be shown that the defendant had sufficient notice so it would not be prejudiced concerning failure to investigate and repose. Instead, they favor "a bright line test" that a suit is commenced when filed in state court no matter how it might be amended, and this has been accepted by a few courts.¹¹⁴ Defendants, on the other hand, argue that CAFA was intended to take multistate cases out of state courts and that the Rule 15(c) test makes it too easy for plaintiffs to make substantial changes without subjecting them to removal.¹¹⁵ In light of these conflicting positions, the Rule 15(c) relation back test has been touted as the best compromise.¹¹⁶

113 Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) (in a diversity case, a federal court must apply the substantive law of the state); Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945) (Statutes of Limitation are substantive).

114 See Weekley v. Guidant Corp., 392 F.Supp.2d 1066, 1067-68 (E.D.Ark. 2005):

Pleadings may be amended, but amending pleadings does not commence a civil action. By definition, a civil action must already have been commenced before a pleading can be amended. Some claims asserted in the initial complaint may be dismissed, voluntarily or involuntarily, during the course of the action. Other claims may be added during the course of the action. Those new claims may dramatically change the action. Those claims may or may not "relate back" to the original complaint for limitations purposes. Nevertheless, a civil action, viewed as the entirety of the case or the entirety of the proceeding, commenced when the initial complaint was filed.

See also Plummer v. Farmers Group Inc., 388 F.Supp.2d 1310, 1317 (E.D.Okla. 2005) (preferring "a bright line test, i.e., that a claim is commenced with the filing of the original complaint").

115 See Garner, supra note 18, at 1683, 1685:

A Rule 15 analysis is primarily concerned, however, with providing a balance between allowing a plaintiff the ability to interrupt statutes of limitations and equitable considerations of protecting a defendant from stale claims. . . . [T]he courts should substitute CAFA's jurisdictional goals as announced by congress to analyze post-CAFA amendments in place of the notice and prejudice requisites in Rule 15 jurisprudence. . . . The principal aims of CAFA were to provide "[f]ederal court consideration of interstate cases of national importance under diversity jurisdiction," to protect out-of-state defendants against in-state bias, and to promote comity among the states by preventing one state from imposing its view of the law on residents of other states. Thus, where amendments to a lawsuit add claims that so transform an action into one that has nationwide or multiple state importance, the court should find that the amendment "commences" a new action such that removal pursuant to CAFA is appropriate.

116 See Prime Care of Northeast KS, LLC v. Humana Ins. Co., 447 F.3d 1284 (10th Cir. 2006) (of the three positions taken by courts, adopting the middle-ground test of whether the amendment relates back).

B. Amendments to Parties

The Seventh Circuit, in Phillips v. Ford Motor Co., ¹¹⁷ said that amendments adding class representatives are "routine" and relate back, a position adopted by most courts.¹¹⁸ This follows from the liberal rule that class representatives can be replaced to avoid mootness, even if the class is "headless," until a new representative is substituted.¹¹⁹ If the original class representative is removed for lack of standing, it might be argued that substitution of a new representative commences a new suit, but the liberal substitution rule would cut against such a finding. However, where the new class representative was not a member of the originally-defined class, and new causes of action were asserted, the amended pleading was found to be "sufficiently independent of the original contentions that it must be treated as fresh litigation."¹²⁰

117 435 F.3d 785, 787 (7th Cir. 2006).

118 See Plubell v. Merck Co., 74 U.S.L.W. 1437 (8th Cir. 2006) (in Vioxx class action, where original class representative was alleged not to have been a purchaser, court rejected defendant's argument that her successor's claims did not arise out of the "same transaction or occurrence," finding that the original and amended complaints alleged the same conduct); Boxdorfer v. DaimlerChrysler Corp., 396 F.Supp.2d 946, 951-53 (C.D.Ill. 2005) (where class had not been certified, substitution of unnamed class members for originally named class representatives related back); Methyl Tertiary Butyl Ether (MTBE) Prods. Liab. Litig., 2006 WL 1004725, *5 (S.D.N.Y. 2006) (naming two new class representatives did not change the essential nature of the case).

119 United States Parole Commission v. Geraghty, 445 U.S. 388, 100 S.Ct. 1202, 63 L.Ed.2d 479 (1980).

120 Heaphy v. State Farm Mut. Auto. Ins. Co., 2005 WL 1950244, at *4-5 (W.D.Wash. 2005) (adding new class representative will commence new action if not a member of the originallydefined class).

Courts are split over the effect of a plaintiff voluntarily dismissing a newly-named defendant whose joinder provided the basis for removal to federal court. Robinson v. Holiday Universal, Inc. ¹²¹ found the addition of the new defendant commenced a new cause of action and that plaintiff could not "unring the bell" by dismissing it. In contrast, Brown v. Kerkhoff ¹²² held that while defendants named in a post-CAFA amendment would have the right to remove a pre-CAFA state-court action, remand was appropriate after the new defendants were dismissed by plaintiff.

121 2006 WL 470592 (E.D.Pa. 2006).

122 2005 WL 2671529 (S.D.Iowa 2005).

Amendments as to defendants raise greater difficulties under the relation-back test. The additional requirement in Rule 15(c)(3) that a newly named defendant "knew or should have known that, but for a mistake concerning the identity of the proper party," it would have been sued has often been interpreted as only allowing relation back for changing a misnomer and not to add a new defendant.¹²³ Some courts have treated the addition of a new defendant as categorically commencing a new case, while others have focused more broadly on whether it arises under the "same transaction or occurrence."¹²⁴

123 See 3 MOORE'S FEDERAL PRACTICE § 15.19[3][d], at 15-94.1 — 15-94.6 (3d ed. 2006).

124 Compare Braud v.Transp. Serv. Co., 445 F.3d 801 (5th Cir. 2006); Schillinger v. Union Pac. R.R., 425 F.3d 330, 333 (7th Cir. 2005); Adams v. Federal Materials Co., 2005 WL 1862378, at *4 (W.D.Ky. 2005); Eufaula Drugs Inc. v. Scripsolutions, 2005 WL 2465746, at *4 (M.D.Ala. 2005) with Prime Care of Northeast KS, LLC v. Humana Ins. Co., supra note 116.

C. Amendments to Claims

The key to a Rule 15(c) analysis of amendments to claims is whether the defendant was put on notice by the original claim that the suit could involve the amended claim. An addition of a new claim that arises out of the same transaction as that in the original complaint would not commence a new action.¹²⁵ However, an amendment that expands the scope of the claims may commence a new action if the defendant could not have anticipated it. In Schillinger v. Union Pacific RR, an amendment changed the class definition of persons over whose property defendant had a right of way from an Illinois-only to a nationwide class. It was found not to commence a new action because the suit was still between the class representative (and class members) and the defendants and concerned the same claim as in the original complaint.¹²⁶ However, in Senterfitt v. Suntrust Mortgage, Inc., an amendment extending the class definition from customers harmed over a four-year period to those harmed over a twenty-year period was found to commence a new suit.¹²⁷ The court found inadequate notice of the number and identities of the class members to the defendant which would be prejudicial because it had been preparing its defense based on the size of the class definition. It distinguished amendments that only "slightly enlarge" the class.¹²⁸ A number of courts have so found.¹²⁹

125 See, e.g., McAnaney v. Astoria Financial Corp., 233 F.R.D. 285 (E.D.N.Y. 2005) (post-CAFA addition of state-law claim did not commence a new action because it related back under Rule 15(c)).

126 425 F.3d 330, 333-34 (7th Cir. 2005).

127 385 F.Supp.2d 1377, 1379-81 (S.D.Ga. 2005).

128 Id. at 1380.

129 See Comes v. Microsoft, 403 F.Supp. 2d 897, 904 (S.D.Iowa 2005) (addition of four paragraphs in a 94-page complaint did not create a "wholly distinct claim" such that it had commenced a new civil action under the CAFA"); cases cited in Schmelz, supra note 23, at 53.

The Knundsen case returned to the Seventh Circuit when the defendant insurance company again removed upon an amendment seeking "much more relief" making defendant responsible for all policies issued by its 35 subsidiaries or affiliates.¹³⁰ This time the court found the amendment commenced a new action, and lack of notice was the reason. The complaint, the court said, "did not even hint" that the defendant "might be accountable for underpayments `on the subsidiaries' policies,' and any effort to recover on account of these policies is a distinct claim for relief (`cause of action' in the state's parlance)."¹³¹

130 Knudsen v. Liberty Mutual Insurance Co., 435 F.3d 755 (7th Cir. 2006).

131 Id. at 758.

D. Scrivener's Errors

Corrections of "scrivener's errors," such as misnaming a defendant who is on notice of the claim or correcting a name or spelling, do not commence a new action under CAFA.¹³²

132 Schillinger v. Union Pacific RR, 425 F.3d 330, 333-34 (7th Cir. 2005) (removal of inadvertently named party).

VI. PREDICTING THE EFFECT OF CAFA JURISDICTIONAL CHANGES ON MULTISTATE CLASS ACTIONS

The Congressional Budget Office concluded in 2002 that, even with the carve-outs in the precursor of CAFA, "most class-action lawsuits would be heard in a Federal district court rather than a state court."¹³³ That prediction may have been a little too sweeping, but certainly most multistate class actions will now be heard in federal courts. That is because they will be removed by defendants under CAFA or will be filed in federal court by plaintiffs who recognize they could be removed anyway.¹³⁴

A. Reduction in the Number of Multistate Class Actions

The effect of CAFA will be to reduce the number of multistate class actions, and certainly the number of national class actions.¹³⁵ The carve-outs in CAFA for "local controversy," "home state," and discretionary remand only apply to class actions involving mostly in-state plaintiffs against essentially in-state defendants. Plaintiffs' attorneys who want to avoid federal court could try to structure their class actions to fit within those carve-outs, but that can only serve a limited number of situations.¹³⁶ More likely is that plaintiffs' attorneys will pare down their class actions to stateonly classes, thus avoiding removal under CAFA. This would result in the segmentation of class actions that before CAFA could have been, and often were, filed as national or multistate class actions.

Fifty different state-only class actions against the same defendant based on the same product defect, business practice, or environmental condition would command a much greater expenditure of legal resources and impose demands on a much larger number of courts. They would also increase the likelihood of inconsistent judgments and of strategic settlements, either on a state or global basis, with certain receptive plaintiffs' counsel. But from the point of view of many defendants, those results are desirable. First, this would be consistent with the "divide-and-conquer" strategy that can lead defendants to oppose class actions. Many defendants would gladly shoulder the additional costs of having to defend in multiple class actions around the country if they could avoid a national class action that gives enormous bargaining power to the plaintiffs.¹³⁷ Second, defendants would probably correctly predict that with national class actions unavailable in state courts, there would rarely be fifty different state class actions. Even the most successful entrepreneurial plaintiffs' class action firms could not undertake many class actions in fifty states and might well focus instead on a small number of larger states. "Copy cat" class actions filed by different attorneys in multiple states would likely not have the bargaining power of a national class action, and defendants might be in a better position to craft a settlement in one court that would preclude other similar cases or an attractive global settlement.¹³⁸ It thus appears that in many situations CAFA has shifted bargaining power to defendants.

137 This is the "judicial blackmail" raised by Judge Posner in In re Rhone-Poulenc Rorer Inc., 51 F.3d 1293, 1299 (7th Cir. 1995) (arguing that "class certification creates insurmountable pressure on defendants to settle," forcing them "to stake their companies on the outcome of a single jury trial, or be forced by fear of the risk of bankruptcy to settle even if they have no legal liability"). But see In re Prempro Prods. Liab. Litig., 230 F.R.D. 555, 573 (E.D.Ark. 2005) ("By describing class actions as legalized blackmail, judges have used inflammatory rhetoric that impugns the character of plaintiffs and trial lawyers who bring class actions, and of trial judges who certify them." (quoting Charles Silver, "We're Scared to Death": Class Certification and Blackmail, 78 N.Y.U. L. REV. 1357, 1429-30 (2003))).

138 When there are identical state-only class actions or overlapping class actions in multiple courts, there is an opportunity for defendants to craft a settlement with receptive class counsel in one case that could be res judicata as to the cases pending in other courts. See Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 116 S.Ct. 873, 134 L.Ed.2d 6 (1996) (holding that a class settlement in a Delaware court of stockholders' claims against their corporation and the take-over company based on tender offer improprieties precluded a pending federal court suit based on the same matter, even as to exclusive federal-court securities causes of action, due to the settlement's general release of all claims in any court). Such settlements can be "sweetheart deals" in which receptive class counsel receive sizable attorneys' fees while the benefits to the class under the settlement are lower than what could be expected in another court. See In re Lease Oil Antitrust Litig., 48 F.Supp.2d 699 (S.D.Tex. 1998) (enjoining oil company defendants from making settlement agreements in an Alabama class action alleging state causes of action based on the same conduct as to which the Texas federal court was overseeing a global settlement of exclusive federal-court antitrust claims, noting that the state-law claims were weaker rendering "the state court case prone to an inadequate, or possibly even collusive, settlement" and "hijacking" the federal global settlement).

B. Federal Courts as the "Only Game in Town"

The foregoing discussion assumes that national and multistate class actions will not be able to stay in state courts. But that does not necessarily mean that there will be no national or multistate class actions; they will simply now be litigated in federal courts. Here is the great uncertainty as to the impact of CAFA. The case made for CAFA by its proponents was that federal courts are better able to administer multistate class actions. They have more resources, and the judges are of a high caliber with life tenure and presumably not subject to pressures that could affect state judges, especially those who are elected. But more important than the resource and expertise issue was the argument that national corporations should not be subjected to multistate class actions in state courts and particularly in target venues that would define their legal liability nationwide.¹³⁹ This was a powerful argument, and the defection of a number of Democratic senators from their leadership's opposition to CAFA seems to have been influenced by this concern.¹⁴⁰

139 See supra note 10 and accompanying text.

140 Senators Carper (Del.), Kohl (Wis.), and Feinstein (Cal.) were prominent in attempting to work out a final bill that would federalize most multistate class actions.

After CAFA, the federal courts are essentially "the only game in town" for multistate and national class actions. The critical question is how they will view such class actions. The contrary positions were apparent in the oral argument in February, 2006, on a motion for a national medical-monitoring class action in the Vioxx litigation which had been transferred by the Multidistrict Litigation (MDL) Panel to the federal court in New Orleans. Plaintiffs' counsel argued that CAFA imposed a responsibility on federal courts to find ways to accomplish efficiency and uniformity through class treatment of aggregated cases based on the same claim of pharmaceutical defect. Defendant's counsel argued that there was no such implication in CAFA and that the legislative history indicated the view that multistate class actions were generally not certifiable in federal or state courts because of choice-of-law requirements.¹⁴¹

141 Plaintiffs' counsel was Elizabeth Cabraser, whose firm, Lieff Cabraser, is a leading plaintiff's class action firm, and defendant's counsel was John Beisner, of O'Melveny Myers, a leading defense attorney in class actions and one of the drafters of CAFA. Class certification was denied for personal injury claims, but "purchaser" and "medical monitoring" class claims had not been ruled on by the end of 2006. See infra note 165.

C. Divisions Between Federal Courts on Class Certification Issues

These arguments reflect a significant disagreement among federal courts in their approach to all class actions, whether or not they are multistate. Although many proponents of CAFA anticipated that fewer class actions would be certified in federal courts, there is no unanimity of approach. Certain circuits have taken strong positions on the requirements of predominance of common questions and superiority in Rule 23(b)(3) class actions, resulting in denial of certification in many situations.¹⁴² Other circuits have applied somewhat more lenient standards.¹⁴³

142 See Allison v. Citgo Petroleum Corp., 151 F.3d 402 (5th Cir. 1998) (finding employment discrimination suit for injunction and damages not certifiable under (b)(2) or (b)(3)); Castano v. Am. Tobacco Co., 84 F.3d 734 (5th Cir. 1996) (finding class action for nicotine addiction not certifiable under (b)(3)).

143 See, e.g., Chiang v. Veneman, 385 F.3d 256 (3d Cir. 2004) (finding a "uniform course of conduct" sufficiently subject to common proof to sustain partial (b)(3) class certification); Klay v. Humana, Inc., 382 F.3d 1241 (11th Cir. 2004) (finding reliance could be proven on a classwide basis to satisfy predominance); Smilow v. Sw. Bell Mobile Sys., Inc., 323 F.3d 32 (1st Cir. 2003) (finding that class claims based on language in a standard-form contract satisfied the predominance requirement despite potential individualized damage issues).

There is also a basic disagreement among the circuits as to when damages will be considered "incidental" so as to allow certification of a Rule 23(b)(2) class action for injunctive or declaratory relief. The United States Court of Appeals for the Fifth Circuit, in Allison v. Citgo Petroleum Corp., ¹⁴⁴ held that for monetary relief to be allowed in a (b)(2) class action, it must "flow directly from liability to the class as a whole on the claims forming the basis of the injunctive or declaratory relief" and must be "capable of computation by means of objective standards and not dependent in any significant way on the intangible, subjective differences of each class member's circumstances."¹⁴⁵ In contrast, the United States Court of Appeals for the Second Circuit, in Robinson v. Metro-North Commuter Railroad Co., would allow even substantial money damages in a (b)(2) class action if, on an ad hoc basis, a reasonable plaintiff would have sought injunctive or declaratory relief even if money damages were not available.¹⁴⁶ The ultimate outcome of this debate will determine the availability of (b)(2) class actions in many situations today when damages are coupled with an injunction for complete relief. Even the Fifth Circuit modified its strict approach to (b)(2) class actions in a civil rights case in which it found damages were only incidental where they could be determined on a classwide basis even though that might involve a "sweat-of-the-brow" consideration of thousands of grids.¹⁴⁷

144 151 F.3d 402 (5th Cir. 1998).

145 Accord Murray v. Auslander, 244 F.3d 807, 812 (11th Cir. 2001). Allison also equated the predominance and superiority requirements in (b)(3) with an inherent requirement of "cohesiveness" in (b)(2) classes, concluding that "the predomination requirement of Rule 23(b)(2) serves essentially the same functions as the procedural safeguards and efficiency and manageability standards mandated in (b)(3) class actions." Allison, F.3d at 414-15. For favorable comment on this approach, see Jeffrey H. Dasteel Ronda McKaig, What's Money Got To Do with It?: How Subjective, Ad Hoc Standards for Permitting Money Damages in Rule 23(b)(2) Injunctive Relief Classes Undermine Rule 23's Analytical Framework, 80 TUL L. REV 1881 (2006).

146 267 F.3d 147, 164 (2d Cir. 2001); accord Molski v. Gleich, 318 F.3d 937 (9th Cir. 2003); see also Berger v. Xerox Corp. Ret. Income Guar. Plan, 338 F.3d 755 (7th Cir. 2003) (finding suit for declaratory relief regarding determination of lump sum distributions could be certified under (b)(2)).

147 See In re Monumental Life Ins. Co., 365 F.3d 408, 418-19 (5th Cir. 2004).

D. Choice of Law in Multistate Class Actions

Perhaps the most critical issue bearing on how federal courts will respond to multistate class actions brought there by CAFA is how they apply choice-of-law issues.¹⁴⁸ There is general agreement that a multistate or national class action cannot satisfy the predominance requirement if the substantive laws of fifty (or a large number of states) must apply, and there are significant differences in the states' laws.¹⁴⁹ But there is considerable diversity among courts as to how choice-of-law rules can be applied in order to avoid this situation.

148 A proposal by Senators Feinstein and Bingaman to add a provision to CAFA that a "district court shall not deny class certification, in whole or in part, on the ground that the law of more than [one] State will be applied" was unsuccessful. See 151 CONG. REC. S1166 (daily ed. Feb. 9, 2005) (statement of Sen. Feinstein); 151 CONG REC. S1184 (daily ed. Feb. 9, 2005). For discussion of this proposal and the American Law Institute's 1994 Complex Litigation Proposal for a national choice-of-law standard with the objective of applying a single state's law, see Jeremy T. Grabill, Comment, Multistate Class Actions Properly Frustrated by Choice-of-Law Complexities: The Role of Parallel Litigation in the Courts, 80 TUL L. REV. 299, 314-18 (2005).

149 See Spence v. Glock, 227 F.3d 308, 314 (5th Cir. 2000) (reversing certification when the laws of every state were likely to apply); In re Am. Med. Sys., Inc., 75 F.3d 1069, 1085 (6th Cir. 1996) (noting that a judge would face "an impossible task of instructing a jury on the relevant law" if more than a few laws of the states differ).

If the laws of multiple states must apply (for example, in a class action for personal injuries when the court finds, under choice-of-law rules, that the law of the place of injury must be applied), ¹⁵⁰ a determination must be made as to whether the laws are in fact in conflict. Some courts have determined that the relevant laws of all the states as to the matter at hand fit into a small number of categories, allowing a jury to apply the different standards by answering different interrogatories. In re School Asbestos Litigation approved a multistate class action for economic harms to property upon finding that the state laws would fit into four basic categories.¹⁵¹ In re Prudential Insurance Co. of America Sales Practices approved a settlement class action on behalf of nationwide purchasers of insurance policies based on alleged misrepresentations relating to "vanishing premiums."¹⁵² The court considered "a series of charts setting forth comprehensive analyses of the various states' laws potentially applicable to their common law claims for fraud, breach of contract, implied obligations of good faith and fair dealing, negligence, and negligent misrepresentation."¹⁵³ It found that the laws fell into "a limited number of predictable patterns" and "a manageable number of jury instructions could be fashioned to comport with the elements of the common law claims in the many jurisdictions."¹⁵⁴ This, however, was a settlement, rather than disputed, class action, and agreement on single choice of law rules is unlikely in most litigated class actions.

150 See, e.g., In re Bridgestone/Firestone, Inc., Tires Prods. Liab. Litig., 288 F.3d 1012, 1016-18 (7th Cir. 2002), cert. denied, 537 U.S. 1105, 123 S.Ct. 870, 154 L.Ed.2d 774 (2003).

151 789 F.2d 996, 1010 (3d Cir. 1986), cert. denied, 479 U.S. 852, 107 S.Ct. 182, 93 L.Ed.2d 117 (1986).

152 962 F.Supp. 450 (D.N.J. 1997).

153 Id. at 525.

154 Id.

This approach has led plaintiffs to produce charts or grids to show that although multiple states' laws will apply, there is no conflict between them.¹⁵⁵ These are usually countered by defendants with their own grids or lists of differences, both as to the elements of the causes of action and procedural law as to such matters as evidence and burden of proof. Even when the cause of action is based on a provision of the Uniform Commercial Code which has been adopted in exact language by most states, case law differences in interpretation can often be identified. The differences may be quite small, and some courts have found that those differences will not have a significant impact on the case. Differences might also be handled through subclasses.¹⁵⁶

155 See Linda M. Mullenix, Gridlaw: The Enduring Legacy of Phillips Petroleum Co. v. Shutts, 74 UMKC L. REV 651 (2006).

156 In In re Telectronics Pacing Systems, Inc., 172 F.R.D. 271, 287 (S.D.Ohio 1997), the court, relying on a compilation of state laws done by court personnel, found state law standards for medical monitoring were different and thus that the named Ohio plaintiffs' claims were not typical, requiring, at a minimum, subclasses.

Other courts have refused to meld together disparate state laws. In In re Rhone-Poulenc Rorer, Inc., Judge Posner, in reversing a nationwide class certification, objected to the lower court's proposal "to substitute a single trial before a single jury instructed in accordance with no actual law of any jurisdiction — a jury that will receive a kind of Esperanto instruction, merging the negligence standards of the 50 states and the District of Columbia."¹⁵⁷ Judge Easterbrook, in In re Bridgestone/Firestone, Inc., Tires Products Liability Litigation, wrote that "[s]tate consumer-protection laws vary considerably, and courts must respect these differences rather than apply one state's law to sales in other states with different rules."¹⁵⁸

157 51 F.3d 1293, 1300 (7th Cir. 1995).

158 288 F.3d 1012, 1018 (7th Cir. 2002).

The complex inquiry as to whether multiple states' laws are consistent might be avoided if, under the forum state's choice-of-law doctrine, the law of a single state can be applied. The presumptive choice of the forum state's own substantive law raises constitutional questions under Phillips Petroleum Co. v. Shutts. ¹⁵⁹ However, a reasoned analysis of the forum state's choice-of-law rules (often in terms of the Restatement (Second) of Conflict of Laws factors that most states follow today)¹⁶⁰ can properly result in applying the law of a single state.

159 472 U.S. 797, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985). See Patrick Woolley, Erie and Choice of Law After the Class Action Fairness Act, 80 TUL. L. REV 1723 (2006).

160 RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 6 (1971).

The Oklahoma Supreme Court in Ysbrand v. DaimlerChrysler Corp., a suit alleging defective installation of air bags in minivans, held that, under the "most significant relationship" test, the law of Michigan, the principal place of business of the defendant manufacturer, would apply to breach of warranty claims.¹⁶¹ This was based on the fact that the interest of that state "in having its regulatory scheme applied to the conduct of a Michigan manufacturer is most significant." However, it found that the law of each of the states where the class members were domiciled would apply to the fraud claims, making a class action on those claims unmanageable.

161 81 P.3d 618, 625-26 (Okla. 2003).

Farmers Insurance Exchange v. Leonard Sawyer, a contract-claim class action by agents against their company for failure to pay bonuses as promised, upheld the application of the law of California, where the insurance group had its principal place of business and from which the bonus contracts were administered, rather than the various states in which the agents performed their side of the bonus contract.¹⁶² It found that California's interests clearly outweighed those of the other states.¹⁶³

162 125 S.W.3d 55, 61-64 (Tex.App. 2003).

163 Id.

In International Union of Operating Engineers Local #68 Welfare Fund v. Merck Co., a New Jersey appellate court found that the law of New Jersey, where the defendant had its principal place of business, could be applied to a nationwide class of third-party payors claiming economic loss from having to pay for the high-priced prescription drug Vioxx whose manufacturer allegedly failed to disclose health risks.¹⁶⁴ Although noting that "certification of a nationwide class action with application of one state's law to all claims is rare," the court found that the interests of New Jersey, where the alleged fraud was conceived and carried out, were stronger than those of other states.¹⁶⁵

164 894 A.2d 1136, 2006 WL 827285, at *8-16 (N.J.Super.Ct.App.Div. 2006).

165 Id. In re Vioxx Products Liability Lit., 2006 WL 3391432 (E.D.La. 2006), an MDL consolidation of some 7,000 federal court Vioxx cases, denied class certification for personal injury and wrongful death claims. It found, analyzing choice of law doctrine in New Jersey where the two class representatives lived and had filed suit, that the laws of the states where the claimants took the drug (all 50 states) would apply rather that of New Jersey where the defendant was headquartered and manufactured the drug. It found predominance of common questions, typicality, and manageability were lacking for class certification. It distinguished the Local #68 decision as involving purchase claims, and did not rule on other pending class certification petitions as to Vioxx purchaser and medical monitoring claims.

These were state-court cases, while under CAFA we expect that most multistate class actions will be in federal courts. Professor Patrick Woolley, noting the absence of a choice-of-law rule in CAFA, concludes that, pursuant to Erie precedents, CAFA doesn't supercede the presumption in favor of state law. "Until Congress enacts a choice-of-law policy that governs class suits," he comments, "federal courts will remain rigidly bound by state choice-of-law rules."¹⁶⁶

166 See Woolley, supra note 159. at 769-70.

Whether federal courts will accord deference to the receptivity of state courts to applying a single state's law after CAFA is a complex issue. A normative justification for federal court unwillingness to stretch in order to resolve choice-of-law problems in multistate class actions is that single-state class actions or individual suits may be more desirable and that "diversified decision-making by legal communities around the country will ultimately lead to better law."¹⁶⁷ On the other hand, as "the only game in town," federal courts will be pressed to allow multistate class actions to proceed by finding choice-of-law solutions in the interests of economy and uniformity of result.

167 See Grabill, supra note 148, at 324 ("Indeed, the Constitution's fundamental principle of dual sovereignty inherently contemplates parallel litigation; the failure of various proposals for unified federal treatment of widespread injury clams should not be troubling. By refusing to certify multistate class actions, courts ensure that each state's laws are respected, rather than neglected in the interest of an `efficient' resolution of related claims.").

A single-law approach to certain kinds of CAFA cases, whether by state or federal court rule, raises interesting possibilities, although Klaxon Co. v. Stentor Electric Manufacturing Co. ¹⁶⁸ remains a barrier to federal choice-of-law in diversity cases. Professor Samuel Issacharoff argues that "building on the jurisdictional bases of CAFA, it is possible to fashion a presumptive baseline rule for national market conduct that transcends the regulatory reach of any particular state."¹⁶⁹ His principle is that "[a]ny actor who engages in nationwide economic activity must be accountable to one single rule of readily discernible substantive law when challenged on the basis of its nationwide activity."¹⁷⁰ How that rule might be accomplished, particularly given the strong opposition of defendants, poses a challenge for post-CAFA federal courts.

168 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941) (Under Erie R.R. v. Tompkins, the conflict of laws rule to be applied by the federal court in a particular state must conform to those prevailing in that state's courts).

169 Samuel Issacharoff, Settled Expectations in a World of Unsettled Law: Choice of Law after the Class Action Fairness Act (NYU School of Law Public Law Legal Theory Research Paper Series), Working Paper No. 06-31, September 2006), at 29.

170 Id.

VII. IMPACT OF "BILL OF RIGHTS" PROVISIONS AS TO SETTLEMENT

The original "Class Action Bill of Rights" in earlier versions of CAFA covered a large number of entrepreneurial practices in class actions, often imposing strict standards that supported defendant's positions. A number were dropped from the final version as the legislation was overtaken by amendments to Rule 23. But despite some overlap with Rule 23, certain provisions concerning settlements were retained, in part to attract votes of Senators who were concerned over much-publicized abuses in coupon settlements and attorneys' fees.

A. Settlements

Coupon settlements are the principal targets in the CAFA provisions relating to settlement. Concern was expressed over settlements where the class members received low-value coupons to purchase the very product or service that was claimed to be defective, while the lawyers received attorneys' fees in the millions of dollars. And yet coupon settlements are sometimes a necessary feature of a settlement. A defendant might be driven into bankruptcy if substantial cash damages are awarded, while coupons can provide class members with at least some benefit:

There are cases where the recovery for each class member would be small and a discount or coupon for future purchases is worth more to the class member than it costs to the defendant. This can be fair where class members will have to continue buying the defendant's service — as in a suit for overcharges by a utility [or where the suit is likely to remedy the defect in the product or service].¹⁷¹

171 Edward F. Sherman, Consumer Class Actions: Who Are the Real Winners?, 56 MAINE L. REV. 223, 229 (2004).

CAFA does not prohibit coupon settlements, but imposes restrictions on attorney's fees relating to them . . .¹⁷² Class counsel attorneys' fees were high on the list of public concerns over class actions. However, amendments to Rule 23 assigned responsibility to judges to address settlement terms and attorney's fees, and abusive coupon settlements have largely disappeared under strict federal-court scrutiny. For example, CAFA's requirement that coupon settlements only be approved after a hearing and a written finding that "the settlement is fair, reasonable, and adequate for class members"¹⁷³ adds nothing to the provisions of amended Rule 23.

172 28 U.S.C. § 1712. See discussion in Robert H. Klonoff Mark Herrmann, The Class Action Fairness Act: An Ill-Conceived Approach to Class Settlements, 80 TUL. L. REV. 1695 (2006).

173 28 U.S.C. § 1712(e). It also provides that the court, upon motion of a party, may receive expert testimony on the actual value to the class members of the coupons that are redeemed. Id. at § 1712(d).

The CAFA restrictions on attorney's fees provide that the portion of any attorney's fee award that is attributable to the award of coupons must be based on the value to class members of the coupons that are redeemed.¹⁷⁴ This clearly forbids valuing the benefit in coupons received by the class (on which attorney's fees might be based) at an unrealistic redemption rate. This would, however, mean that attorney's fees could not be awarded until the coupons expire (and it is in the interests of class members that coupons not expire too quickly). By requiring a valuation based on actual, rather than estimated, redemption, this provision could delay, if not entirely discourage, coupon settlements. An even more restrictive provision was put in a Texas "tort reform" statute. It provides that "if any portion of the benefits recovered for the class are in the form of coupons or other noncash common benefits, the attorney's fees awarded in the action must be in cash and noncash amounts in the same proportion as the recovery for the class" and mandating a "lodestar" method of computing attorneys' fees (i.e., based on time spent by attorneys).¹⁷⁵

174 28 U.S.C. § 1712(b). Distribution of unredeemed coupons to charitable or governmental organizations may not be used to calculate the attorney's fees based on the coupon value. Id. § 1712(e).

175 TEX. CIV. PRAC. REM. CODE ANN. § 26.003 (Vernon 2003).

If a portion of the recovery of coupons is not used to determine the attorney's fee, the attorney's fee award must be based upon the amount of time class counsel reasonably expended on the action.¹⁷⁶ It is specifically provided that use of a lodestar with a multiplier to determine attorney's fees is not foreclosed, but nothing is said about the increasingly favored "percentage of the benefit" method.¹⁷⁷

176 28 U.S.C. § 1712(b)(1). If an award of coupons also provides for equitable relief, that portion of the attorney's fee based upon a portion of the recovery of coupons will be calculated on the value of the coupons to class members. Id., § 1712(c)(1). That portion of the fee award not based on a portion of the recovery of coupons will be based on the time counsel spent on the case. Id. § 1712(c)(2).

177 See MANUAL FOR COMPLEX LITIGATION (4th) § 14.121 ("the vast majority of courts of appeals now permit or direct district courts to use the percentage method in common-fund cases").

B. Notice to Officials

CAFA provides that within ten days following the filing of a proposed class settlement, "each defendant that is participating in the proposed settlement" must serve notice "upon the appropriate State official of each State in which a class member resides and the appropriate Federal Official."¹⁷⁸ There is a long list of items that must be included in the notice that will, no doubt, make up a hefty package: a copy of the complaint and accompanying materials; notice of the judicial hearings scheduled; proposed notification to class members; proposed class settlement; any other contemporaneous agreement entered into between class counsel and defense counsel; notice of any dismissal or final judgment; and any written, judicial opinions relating to the case. Finally, the notice must provide to the appropriate state official, "if feasible, the names of class members who reside in each State and the estimated proportionate share of the claims of such members to the entire settlement "¹⁷⁹

178 28 U.S.C. § 1715(b). Appropriate federal official means the U.S. Attorney General or, where the defendant is a depository institution, etc. as defined in the Federal Deposit Insurance Act, "the person who has the primary Federal regulatory or supervisory responsibility with respect to the defendant." Appropriate state official means the person "who has the primary regulatory or supervisory responsibility with respect to the defendant or who licenses or otherwise authorizes the defendant to conduct business in the State, or if there is no primary regulator, etc., or the matters are not subject to regulation by that person, then the State attorney general. 28 U.S.C. § 1715(a)(1) (2).

179 28 U.S.C. § 1715(b)(1)-(8). If this is not feasible, there must be provided "a reasonable estimate of the number of class members residing in each State and the estimated proportionate share of the claims of su-h members to the entire settlement." Id., § 1715(b)(7)(B).

The notice provisions are the Frankenstein's Monster of CAFA. Identifying which agencies and officials have regulatory power and therefore must be notified could be a difficult and expensive task that could impede timely and efficient settlements. Parties considering settlement must make judgments as to which officials have regulatory authority over the defendants and matters involved with the threat that if any are missed, the finality of the settlement could be challenged.¹⁸⁰

180 See detailed discussion in Klonoff Herrmann, supra note 172.

"The notice requirements inevitably will lead to litigation regarding whether appropriate officials were notified and whether notice was given within the appropriate timeframe."¹⁸¹ Thus the parameters of settlement have become unsettled and seem likely to discourage settlements. The notice requirements were intended to require scrutiny of settlements by appropriate officials in the public interest. Officials could intervene or attempt to affect the terms of a settlement, ¹⁸² but whether that will curb settlement abuses or stymie reasonable and efficient settlements is uncertain.¹⁸³

181 Paul A. Howell, Jr. James F. Jorden, Review of Class Action Fairness Act and Recent Cases Interpreting Its Provisions, ALI-ABA Continuing Legal Education Course of Study, March 30-31, 2006, SL099 ALI-ABA 255, at 6.

182 A number of state attorneys general, including Illinois, Nevada, New Mexico, and New York, have created a process for reviewing class action settlements, but have not formally intervened since CAFA. However, AGs have conveyed their views informally in some cases, sometimes resulting in changes in settlements. The only case of formal objection as of the end of October, 2006 is Florida v. Wyndham International Inc., No. 02-CA-1296 (Leon Co., Fla. Cir.Ct.). Peter Geler, "State AGs Eschew Class Action Fairness Act Review," NATIONAL LAW J., Oct. 31, 2006.

183 For a reasonable approach to settlement structure, see Francis E. McGovern, A Model State Mass Tort Settlement Statute, 80 TUL L. REV. 1809 (2006).

VIII. CONCLUSION

CAFA is primarily a jurisdictional act, accomplishing the transfer to federal courts of most multistate class actions. Its provisions for settlements and attorney's fees are partly duplicative of requirements in Rule 23 and relatively inconsequential, except for the burdensome requirement to notify government officials. Nevertheless, CAFA is the most significant change in class action practice since the 1966 amendment of Rule 23 and is likely to have considerable impact on how attorneys structure and conduct class actions. It represents years of lobbying by business interests and should limit forum-shopping in target state courts for multistate class actions. Whether it goes too far in depriving state courts of jurisdiction over large areas of class actions was much debated, and its impact on state-court class actions is still to be seen. Although the three carve-outs intended to preserve state-court jurisdiction over cases with paramount state interest are limited, they are likely to result in more single-state, as opposed to multistate, class actions. The manner in which federal courts deal with the choice-of-law issue will be determinative of whether many multistate class actions can survive in federal courts.

The views expressed are those of the author and do not necessarily reflect the views of the publisher. February 2007.