Insight from Carlton Fields

Transcription

1 Insight from Carlton Fields January 1, 2012 : A Look Back at the Class Action Fairness Act in the Circuit Courts of Appeals in 2011 By Sylvia H. Walbolt and Joseph H. Lang, Jr. Eight circuit courts of appeals rendered 19 notable decisions addressing various issues under the Class Action Fairness Act (CAFA) in 2011, with the Seventh Circuit leading the way with five such decisions. Some show that forum shopping for class actions is alive and well. Others favor CAFA removal unless the plaintiff can show that it is impossible for the claim to exceed the jurisdictional amount-in-controversy threshold, while still others favored remands because removal statutes should be strictly construed. One decision relies upon Mark Twain for a grammar principle. There is only one dissenting opinion, but it is a very good one, citing the oft-used duck test. 1. Is a parens patriae suit by a state a CAFA class action? No, say the Fourth, Seventh, and Ninth Circuits, although they arrive at that answer in somewhat different ways. The Fourth Circuit was the first to weigh in on the issue, and it rejected the defendants argument that the suit was a disguised class action seeking relief on behalf of the states citizens. See West Virginia v. CVS Pharmacy, Inc., 646 F.3d 169 (4th Cir. 2011). The Court pointed to the fact that the statutes under which the state sued did not contain[] any numerosity, commonality or typicality requirements, all of which are essential to a class action. Id. at 176. The Court also relied on notions of comity and federalism, stating it should step most carefully before allowing a case brought by the state in state court under its own state laws to be unwillingly removed to federal court. Id. at 179. The dissent asserted that the factors referenced by the majority were bells and whistles whose absence in the pleadings did not prevent the suit whose primary thrust was recovery of excess charges payable directly to the affected consumers from being similar to a class action. Id. at 179, 181 (Gilman, Senior Circuit Judge, dissenting). Using the duck test, the dissent concluded the case quacks like a class action. Id. at 185 ( there is a saying that if something looks like a duck, walks like a duck, and quacks like a duck, it is probably a duck. To my mind this case quacks much more like a CAFA class action than a parens patriae case. ). Expressing concern that the state has been used as a pawn so that the effect of CAFA could be avoided, the dissent also said there were no issues regarding the state s sovereignty since it voluntarily brought this lawsuit. Id. at 182, 185. In Washington v. Chimei Innolux Corp., 659 F.3d 842 (9th Cir. 2011), the Ninth Circuit agreed with the Fourth Circuit, explaining that class actions are always representative actions, but representative actions are not necessarily class actions. Id Carlton Fields, PA. All rights reserved. Carlton Fields publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our Contact Us form, which can be found on our website at. The distribution of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the author and do not necessarily reflect those of the Firm. 1

2 at 848. The Court also noted agreement with the Fourth Circuit s conclusion that, [b]ecause the state statutes did not require the [Attorney General] to be designated as a representative member of the class and did not contain any numerosity, commonality, or typicality requirements, the Fourth Circuit held that the action was not covered by CAFA. Id. at 849. The Seventh Circuit reached the same result, although using an approach [that] is technically different from those courts decisions. See LG Display Co., Ltd. v. Madigan, 2011 WL , *1 (7th Cir. Nov. 18, 2011). There, the Court rejected the suggestion that the case was a disguised class action or mass action and concluded that this parens patriae case and class actions are entirely different beasts WL , at *1, *3. The Court also rejected a claim-by claim analysis, saying that just because CAFA was meant to expand federal courts jurisdiction over class actions, it does not follow that federal courts are required to deviate from the whole complaint analysis when evaluating whether a state is the real party in interest in a parens patriae case WL , at *4. Finally, the Court also concluded [r]estraint is particularly appropriate in light of the Supreme Court s directive that removal [statutes] should be strictly construed, and the sovereignty concerns that arise when a case brought by a state in its own courts is removed to federal court WL , at *5 (internal citation omitted). In the end, declaring that it lacked jurisdiction in the case, the Court denied leave to appeal. Id. 2. How much is enough to satisfy the amount in controversy? One of the most frequent issues addressed in 2011 was whether the amount in controversy was sufficient for removal under CAFA. The Seventh Circuit decided four such cases, all within several months of each other.. In ABM Security Services, Inc. v. Davis, 646 F.3d 475 (7th Cir. 2011), the Court reversed the remand order, observing that the district court did not show its work. Despite doing its own calculations and determining that the amount in controversy was insufficient, the district court did not show its own calculations in the order or explain how it calculated the statutory penalty. Id. at 478. The Court emphasized that, [o] nce the proponent of federal jurisdiction has explained plausibly how the stakes exceed $5,000,000, the case belongs in federal court unless it is legally impossible for the plaintiff to recover that much. Id. (citing Blomberg v. Serv. Corp. Int l, 639 F.3d 761, 764 (7th Cir. 2011)). In Back Doctors Ltd. v. Metropolitan Property & Casualty Ins. Co., 637 F.3d 827 (7th Cir. 2011), writing through Chief Judge Easterbrook, the Court granted leave to appeal and, because the papers already on file adequately present the parties arguments, we resolve the appeal summarily : The order returning this suit to state court is vacated, and the case is remanded to the district court for decision on the merits. Id. at 829, 831. The Court began by noting that litigants can make recovery of more than $5 million impossible, and thereby prevent removal, by forswearing any effort to collect more than the jurisdictional threshold. Id. at 830. Here, however, the plaintiff tried to have it both ways by simply saying, in opposing removal in the district court, that it did not now want punitive damages.... Id. The Court observed that events after the date of removal do not affect federal jurisdiction and, further, [a] representative can t throw away what could be a major component of the class s recovery. Id. 2

3 The Court stressed that the omission of a claim for punitive damages in the complaint did not, under Illinois law, preclude a later amendment and that [a] statement that it does not now want punitive damages would not prevent a change of mind. Id. at 831. When a plaintiff does not tie its own hands, the defendant is entitled to present a good-faith estimate of the stakes. Id. The Court did not address how a plaintiff could tie its hands by disclaiming punitive damages in its complaint and still carry out its fiduciary duty to the class. We suspect we will see this issue addressed in future cases. Finally, again writing through Chief Judge Easterbrook, the Seventh Circuit granted leave to appeal and summarily reversed the remand order without further briefing (we see a trend) in Keeling v. Esurance Ins. Co., 660 F.3d 273 (7th Cir. 2011). The Court first ruled that the district court erred in finding the cost of complying with an injunction would be trivial: just reprint the forms. But this suit is about money, not ink. Id. at 274. The Court concluded [t] he cost of prospective relief cannot be ignored in the calculation of the amount in controversy. Id. actions when determining the amount in controversy. Here, the Court readily affirmed the remand order, holding that, unlike the decision of the Sixth Circuit in Freeman v. Blue Ridge Paper Production, Inc., 551 F. 3d 405 (6th Cir. 2008), Marple did not structure her lawsuit to circumnavigate [CAFA]. Marple, 639 F.3d at Rather, in this case where T-Mobile itself had divided similar litigation into ten lawsuits in state court, Marple s filings exactly mirror[ed] the underlying ten lawsuits brought by T-Mobile and are driven by T-Mobile s own litigation decisions. Id. Three other district courts were reversed this year in short, unpublished opinions. The Second Circuit easily reversed the sua sponte dismissal of a class action for lack of subject matter jurisdiction in Bank v. Hydra Group, LLC, 433 Fed. Appx. 50, 2011 WL (2d Cir. Sept. 29, 2011), saying that given the paucity of analysis by California courts of the law at issue (the case, governed by California law, was filed in the Eastern District of New York), it could not say with a legal certainty that the amount in controversy was less than $5 million WL , at *1. The Court then addressed the claim for punitive damages and refused to engage in speculation whether constitutional constraints on a ratio would require a punitive damages award too low to support removal. That is, the Court said that questions of the available multiplier should not be smuggled into the jurisdictional inquiry, which is supposed to be simple and mechanical. Id. at 275. It concluded that it was not legally impossible for the class to recover more than $3 million in punitive damages. Improbable, perhaps, but not impossible. Id. In contrast, in Marple v. T-Mobile Central LLC, 639 F.3d 1109 (8th Cir. 2011), the Eighth Circuit confronted the question whether defendants may aggregate the amounts sought in separate, similar class The Ninth Circuit was equally short in reversing in Grant v. Capital Management Services, L.P., 2011 WL (9th Cir. Sept. 2, 2011), declaring that the defendant had presented sufficient evidence, with none from the plaintiff, and that the district had effectively but erroneously required the defendant to admit liability in order to remove the case to federal court WL , at *1 ( a party need not concede liability to remove a case to federal court under CAFA ). And in Shah v. Hyatt Corp., 425 Fed. Appx. 121, 2011 WL (3d Cir. Apr. 27, 2011), the Third Circuit reversed a district court s remand order, holding the district court had original jurisdiction over the individual plaintiff s claim that could not be declined, even 3

4 though the district court correctly determined that it did not have original jurisdiction over the class action under CAFA WL , at *2. The Third Circuit held that district court should, on remand, in its discretion, determine anew whether to exercise supplemental jurisdiction over the class claims WL , at *4. 3. When is the case local enough to avoid removal? AFA has a local controversy exception and it is a plaintiff s burden to show its application when seeking remand. Specifically, the exception says that the district court shall decline to exercise [removal] jurisdiction... over a class action in which (I) 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; (II) at least 1 defendant is a defendant (aa) from whom significant relief is sought by members of the plaintiff class; (bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and (cc) who is a citizen of the State in which the action was originally filed; and (III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed[.] 28 U.S.C. 1332(d)(4)(A)(i). This exception has predictably sparked much litigation. The Ninth Circuit weighed in on this exception at the beginning of 2011, holding that a federal district court is limited to the complaint in deciding whether the criteria set forth in 1332(d)(4)(A)(i)(II)(aa) whether significant relief is sought from a defendant who is a citizen of the state in which the suit is filed and 1332(d)(4)(A)(i)(II)(bb) whether the defendant s alleged conduct forms a significant basis for the claims asserted by the proposed class is satisfied. Coleman v. Estes Express Lines, Inc., 631 F.3d 1010, 1015 (9th Cir. 2011). The Ninth Circuit held that the statutory language was unambiguous and required the determination to be based on the complaint, not extrinsic evidence. Id. In so holding the Court stressed that Congress was particularly concerned that subject matter jurisdiction determinations be made quickly under CAFA, id. at 1016, and making a factual determination whether the alleged conduct of the local defendant forms a significant basis for the claims asserted is particularly likely to be expensive and time-consuming. Id. at The Court noted other courts have concluded that extrinsic evidence can be considered with respect to these two criteria but expressed its disagreement with those decisions. Id. at The Court also acknowledged the different pleading standards in state and federal courts, which make it possible that the originally drafted complaint will not answer the questions that need to be answered before the federal court can determine whether the suit comes within the local controversy exception to CAFA jurisdiction. Id. at The district court may then, however, require or permit the filing of an amended complaint that addresses any relevant CAFA criteria. Id. at

5 The Court discussed the legislative history, apparently as an academic matter: Because we hold the text is unambiguous, we need not consult the legislative history. We discuss that history only because several courts have relied on a Report of the Senate Judiciary Committee to support a conclusion that the district court is not limited to the complaint in deciding whether subsections (aa) and (bb) are satisfied. Id. at The Court proceeded to explain why that report (Senate Report No (2005)) did not alter its reading of the plain statutory language. By a concurring opinion, Judge O Scannlain criticized the majority s lengthy discussion of the legislative history, saying it served only to obscure our reading of the plain text of CAFA. Id. at 1021 (O Scannlain, J., concurring). The judge went on to question whether the report even qualified as legislative history, and that, [f]or this reason alone, we can reject any decisions relying on this Report without having to parse its examples. Id. The Fifth Circuit subsequently addressed this exception three times in 2011, finding it was satisfied in two of those three cases. In vacating the remand order in Opelousas Gen. Hosp. Auth. v. Fairpay Solutions, Inc., 655 F.3d 358 (5th Cir. 2011), the Court began by noting that it was the plaintiff s burden to establish the exception and that the exception is intended to be narrow, with all doubts resolved in favor of exercising jurisdiction over the case. Id. Whether looking only to the allegations of the complaint or also at the parties extrinsic evidence, the exception was not satisfied in this case. The Court concluded that, in either event, more detailed allegations or extrinsic evidence detailing the local defendant s conduct in relation to the outof-state defendants must be provided than plaintiffs produced in this case to establish this statutory exception. Id. On the other hand and on the same day, the Court found that this exception was satisfied in Hollinger v. Home State Mut. Ins. Co., 654 F.3d 564 (5th Cir. 2011). The dispositive issue was whether the plaintiffs established that two-thirds or more of the class were citizens of the state where suit was filed. Id. at 571. In determining the proposed class was domiciled in Texas at the time the complaint was filed, the Court looked to statistical census data on relocation out of Texas, the fact that the suit involved a Texas insurance statute and limited the class to persons who purchased an automobile insurance policy in Texas, and the fact that the primary defendants issued policies only in Texas. Id. at The Court also addressed the requisite intention to remain in Texas, saying that registering a car and insuring it in Texas is some evidence of an intent to remain in Texas-at least for a while. Id. at 574. It noted that, [u]nlike owning a second home, a vehicle owner is more likely than not inclined to wait until actual relocation to register and insure a vehicle. Id. In the same month, the Fifth Circuit again ruled the exception was satisfied and affirmed a remand order, correcting the defendant s math to find the plaintiff class was well above CAFA s two-thirds requirement. Williams v. Homeland Ins. Co. of New York, 657 F.3d 287, 291 (5th Cir. 2011). The Court further rejected the defendant s contention that a class arbitration was a class action under CAFA. Id. at What Other CAFA Issues Were Addressed On Appeal in 2011? Apart from the concentration of appellate decisions on the foregoing issues, some other isolated (and very interesting) issues were addressed by the Eighth, Ninth, and Tenth Circuits. 5

6 In Thatcher v. Hanover Ins. Group, Inc., 659 F.3d 1212 (8th Cir. 2011), the Eighth Circuit addressed a situation where, after a CAFA removal, the plaintiff sought permission to voluntarily dismiss his case without prejudice so that he could refile an amended complaint in state court that would avoid federal jurisdiction. Id. at The Court held that the district court abused its discretion in granting the plaintiff s voluntary motion to dismiss without prejudice without first considering whether the motion was an improper forum-shopping measure. Id. The Court set forth the factors the district court should have considered in adjudicating the motion: A decision whether to allow a party to voluntarily dismiss a case rests upon the sound discretion of the court. In exercising that discretion, a court should consider factors such as whether the party has presented a proper explanation for its desire to dismiss; whether a dismissal would result in a waste of judicial time and effort; and whether a dismissal will prejudice the defendants. Likewise, a party is not permitted to dismiss merely to escape an adverse decision nor to seek a more favorable forum. Id. at (citing Hamm v. Rhone Poulenc Rorer Pharm., Inc., 187 F.3d 941, 950 (8th Cir. 1999) (internal citations omitted)). Although several factors supported the lower court s decision, the plaintiff s expressed intent was to amend his complaint in order to avoid federal jurisdiction. Id. at The plaintiff gave no reason why it would benefit the class he purported to represent to drop currently alleged claims, and it is inappropriate for a plaintiff to use voluntary dismissal as an avenue for seeking a more favorable forum. Id. The determination whether the dismissal was being used for the improper purpose of seeking a more favorable forum called into question the existence of federal subject matter jurisdiction, a question the district court failed to address. After the trial court determines whether it has subject matter jurisdiction, it can consider whether dismissal without prejudice is appropriate, taking into consideration whether the motion to dismiss is a forum-shopping measure. Id. at Maybe charting a safer course to accomplishing the same end, the plaintiffs in Dudley-Barton v. Service Corp. Int l, 653 F.3d 1151 (10th Cir. 2011), sought remand and then filed their voluntary dismissal in state court after the remand was granted. When the defendant attempted to appeal the CAFA remand, the Tenth Circuit ruled that the plaintiff s voluntary dismissal of the case in state court after the remand order mooted the CAFA issue, even though the dismissal was without prejudice. Id. at Instead, the Court applied the usual principles of mootness and concluded that the plaintiffs claims were not capable of repetition, yet evading review, nor were they inherently transitory. Id. at There is no discussion of forum shopping in the Court s opinion. Finally, the Ninth Circuit was the only appellate court to rely upon Mark Twain in addressing a CAFA issue. See Westwood Apex v. Contreras, 644 F.3d 799 (9th Cir. 2011). The Court was confronted with the question whether CAFA allows an additional counterclaim defendant to remove the case to federal court. The Ninth Circuit said no. CAFA provides that any defendant may remove. Id. at 803. But in rejecting an expansive view of the word any, the Court would not join the defendants faith in the redeeming power of one adjective any. Declaring that this argument ignores Twain s skepticism on the value of a modifier, the Court quoted from The Tragedy of Pudd nhead Wilson: As to the Adjective; when in doubt, strike it out. Mark Twain, The Tragedy of Pudd nhead Wilson 130 (Am. Pub. Co., 1900) (1894). Equally to the point, the Court relied on the established case law at the time CAFA was enacted that 6

7 limited the term defendant for purposes of removal to mean only the original defendant. The Court stressed that CAFA evidences [a] detailed appreciation of the background legal context, and nothing suggests Congress intended to deviate from established law regarding the meaning of the term defendant. Id. at 806. The Court specifically noted the failure of the legislative report (Senate Report No (2005)) on CAFA to suggest any such thing. (This is the same report the Court commented about in Coleman.). In sum, the Court refused to do what Congress did not, by rewriting the meaning of an accepted and understood term. Id. at 807. To do that would give disparate meanings to the same word used in related statutes, and this was not the rare occasion warranting that. Id. Given that Congress expressly intended CAFA to expand federal diversity jurisdiction over class actions, Lowery v. Alabama Power Co., 483 F.3d 1184, 1197 (11th Cir. 2007), it seems strange that Congress would have wanted to funnel class actions filed by means of an original complaint into federal court but keep those filed by means of a counterclaim in state court. But as the court correctly concludes, CAFA achieves this particular result, and if Congress does not like it, Congress should rethink the rule. Id. And so it may. Conclusion 2011 showed the variety of interesting jurisdictional issues that arise under CAFA. The coming year doubtless will prove equally interesting. Happy New Year! By a concurring opinion, Judge Bybee explained the ironic and unfair result of the original defendant rule: In this case, what started as $20,000 debtcollection case has now morphed into a complex class action involving approximately 7,000 counter-plaintiffs and an amount in controversy in the hundreds of millions of dollars. The original action filed by Westwood Apex against Jesus Contreras has been consumed by Contreras s counterclaim. The original debt is now a sideshow, an insignificant offset to anything recovered by the class. It is thus counterintuitive that CAFA does not authorize the removal of this suit but, for the reasons explained in the principal opinion, the court has properly adopted the original defendant rule as CAFA s own. For more information, please contact: Syliva H. Walbolt swalbolt@carltonfields.com /swalbolt Joseph H. Lang, Jr. jlang@carltonfields.com /jlang Id. (Bybee, J., concurring). Had the counterclaim plaintiff filed a separate class action, defendant could have removed it to federal court but, because he did not do so, they must now, by happenstance, litigate in state court. Id. at 809. The bemused concurring judge concluded as follows: 7