The Class Action Fairness Act of 2005

Transcription

1 Two Years Later The Class Actio Fairess Act of 2005 By Bradley C. Nahrstadt ad Bria Y. Boyd Perhaps the biggest story about the first two years of the Class Actio Fairess Act ( the Act ) is that it was t such a big story. Like the demise of Mark Twai, rumors of the death of class actios appear to have bee greatly exaggerated, ad cosiderig the touted sigificace of the legislatio, its eactmet marked a relatively smooth legal trasitio. Neverthe- Durig the public debate about the Class Actio Fairess Act, may placed specific emphasis o the mechaisms that would limit plaitiffs choice of veue ad potetially make it more difficult for class plaitiffs to seek relief from the courts. Igored to some degree were less cotroversial, but equally importat, portios of the Act that sought to reig i o-moetary settlemets that offered questioable value to class plaitiffs. So-called coupo settlemets that had little or o cash value were routiely assessed at full or ear full value for purposes of computig the prevailig attorey s cotigecy fee, creatig what some saw as a coflict of iterests for the plaitiffs attorey ad a icetive to pursue frivolous litigatio. The Act charged federal courts with the resposibility to review such settlemets critically to determie whether they are i the best iterest of the class plaitiffs before approvig them. Whatever truth there was to the suppositio that plaitiffs attoreys had a pecuiary iterest i favorig coupo settlemets, it is equally, if ot more, true that defedat corporatios favored such settlemets for their ow bottom lie. For the same reaso that coupo settlemets had little or o cash value to the prevailig plaitiffs, they ofte had little or o cash cost to the settlig corporate defedats. Sice most coupos reistece, to describe cotroversial areas of its iterpretatio, ad to highlight the most importat issues relatig to the Act s applicatio i the future. The Impact of the Class Actio Fairess Act Judgig the efficacy of the Class Actio Fairess Act based o its first two years of existece depeds largely o oe s perspective of what the Act was iteded to accomplish. For those who cosidered the Act a raw exercise of lobbyig power by big busiess desiged to elimiate or sharply curtail class actio liability, the Act has failed to live up to expectatios. For those who had hoped that the Act would result i more class actio lawsuits beig filed or trasferred ito the federal courts, the Act has largely bee a success. Perhaps the most uexpected developmet cocerig the Act is the fact that some corporate defedats are reluctat to ivoke it. less, there have bee sigificat areas of ucertaity ad disagreemet amog the judiciary o importat aspects of the Act s applicatio. The most immediate cocer facig district court judges was determiig whether the Act applied to cases pedig at the time of the Act s passage. A more fudametal questio that arose followig the passage of the Act was determiig which party shoulders the burde of proof i establishig federal jurisdictio uder the Act. Although iterpretatio of the Act s subject-matter carve-outs has ot, thus far, bee a source of major cofusio, the Mass Actio provisio has bee braded bewilderig by the Nith Circuit Court of Appeals. The purpose of this article is to survey, briefly, the impact of the Class Actio Fairess Act durig its first two years of ex Bradley C. Nahrstadt is a parter, ad Bria Y. Boyd is a associate, i the Chicago law firm of Williams, Motgomery & Joh LTD. Mr. Nahrstadt is a member of DRI whose practice areas iclude products liability, professioal malpractice law, medical malpractice, costructio law, ursig home litigatio, ad isurace law, amog others. Mr. Boyd s practice focuses o commercial litigatio, itellectual property, ad director ad officer liability DRI. All rights reserved. I-House Defese Quarterly Witer

2 C l a s s A c t i o s quired some purchase of goods or services i order to realize ay beefit, each coupo that was redeemed meat additioal busiess for the defedat that, but for the settlemet, it might ot have received. I some cases it was suspected that the settlig defedat would ultimately break eve, if ot profit, from the settlemet. S. Rep. No at 16, 2003 WL (2003) (citig America Airlies Settles Lawsuits Over Frequet Flier Program, Fort Worth Star-Telegram, Jue 22, 2000). This suspicio could garer support from the fact that sice its eactmet, class actio defedats have ot automatically sought removal of cases whe the Act provides a jurisdictioal basis to do so. As oe commetator has oted, For cases filed after the [Act], the issue of Ca we remove a case? is geerally yes, but the issue of whether to remove is much more cloudy. Peter Geier, CAFA a Year Later? Not so Bad, The Natioal Law Joural, March 6, 2006 (quotig class actio defese attorey Wilso F. Gree of Battle Fleeor Gree Wi & Clemmer of Birmigham, Ala.). Despite these criticisms, class actio lawsuits are o the rise i federal courts, whether measured by origial filigs or by removals. Thomas E. Willgig ad Emery G. Lee III, The Impact of the Class Actio Fairess Act of 2005 Third Iterim Report to the Judicial Coferece Advisory Committee o Civil Rules ( Third Iterim Report ), Federal Judicial Ceter, April 2007, at cafa0407.pdf/$file/cafa0407.pdf, p. 2. Early data from the Federal Judicial Ceter suggests that the Act has reversed a log-term dowward tred i diversity cases i federal court. Third Iterim Report, at 14. The same report foud a 46 percet icrease i class actio litigatio before the federal courts. Id. At the same time, the drop i class actio filigs i so-called judicial hell holes has bee othig short of precipitous. Madiso Couty, Illiois, which served as the iitiatig court for 106 class actio lawsuits i 2003 ad 84 i 2004, saw just 49 class actio suits filed i its courts i 2005 ad 2006 combied, oly 10 of which postdated the Act becomig law i early Amy Kef, Class Actio Fairess Act: Is It Workig?, The Record, March 21, 2006 (otig the umber of class actios filed i from 2003 to 2005); Adam Jadhav, Lawsuit Filigs Cotiue to Fall i the Metro East, St. Louis Post-Dispatch, Jauary 4, 2007 (otig the umber of class actios filed i Madiso Couty i 2006). The cases that are o loger beig filed i Madiso Couty appear to have foud their way ito federal, or alteratively Delaware, courts. Shruti Daté Sigh, Judicial hellhole freezes over, Chicago Busiess (Crai s), There is a split of authority regardig whether the relatioback test should be applied to amedmets that add ew defedats to a case. September 9, 2006, at com/cgi-bi/ews.pl?id= Whe Does a Case Commece for Purposes of the Act? The Class Actio Fairess Act of 2005 applies to ay civil actio commeced o or after the date of its eactmet, February 18, I aticipatio of the Act becomig law, there was a flurry of class actio cases filed i plaitiff-favored veues, such as Madiso Couty, Illiois. Bria Brueggema, Study Expects Sharp Dip i Couty s Class Actios, Belleville News-Democrat (February 20, 2005). Although it is clear that the Act does ot apply retroactively to such cases, questios soo arose whe cases that were filed before the Act took effect were ameded to iclude ew parties or ew claims after the Act was i place. Plaitiffs, aturally, argued that such amedmets related back to the origial filig date, while defedats likeed the amedmets to brad ew claims that should make them subject to removal uder the Act. A miority of courts, seizig o the laguage: commecemet of a civil actio, held that because the act of amedig a complait does ot commece a civil actio, a amedmet caot ivoke the applicatio of the Act. See, e.g., McAtee v. Capital Oe, 479 F.3d 1143, (9th Cir. 2007) (substitutio of amed defedat for Doe defedat does ot commece civil actio for purposes of CAFA); Progressive West Is. Co. v. Preciado, 479 F.3d 1014, (9th Cir. 2007) (amedmet to cross-complait i state court does ot commece civil actio for purposes of CAFA); see also Lowery v. Hoeywell It l, Ic., 460 F. Supp. 2d 1288, 1292 (N.D. Ala. 2006); Plummer v. Farmers Group, Ic., 388 F. Supp. 2d 1310, (E.D. Okla. 2005); Weekley v. Guidat Corp., 392 F. Supp. 2d 1066, 1068 (E.D. Ark. 2005); Comes v. Microsoft Corp., 403 F. Supp. 2d 897, 903 (S.D. Iowa 2005); I re Expedia Hotel Taxes & Fees Litigatio, 377 F. Supp. 2d 904, 906 (W.D. Wash. 2005). I explaiig this reasoig, the Nith Circuit Court of Appeals stated: Because of the differece i stakes i statute of limitatios ad CAFA cases, the cosideratios that have goe ito the formulatio of the relatio back doctrie have relatively little bearig o whether CAFA should apply to a class actio filed i state court. I a CAFA case, we eed be less cocered about avoidig ufair surprise of a defedat, ad more cocered about havig a clear ad easy-tofollow rule. We therefore held i Preciado that, i the absece of ay clear idicatio i state law to the cotrary, relatio back doctrie should ot be imported ito the determiatio of whe a actio is commeced i state court for purposes of CAFA. Istead, at least i Califoria, we simply look to the date o which the origial complait was filed. McAtee, 479 F.3d at 1147 (citatios omitted). Thus, accordig to the courts that follow the McAtee lie of reasoig, ay amedmet whether addig or replacig plaitiffs or defedats or addig ew causes of actio does ot chage the date of commecemet. The majority of courts have applied the stadard relatio back test, uder either Federal Rule of Civil Procedure 15(c) (see, e.g., New Cetury Health Quality Alliace, Ic. v. Blue Cross ad Blue Shield of Kasas City, Ic., No CVWSOW, 2005 WL (W.D. Mo. Sept. 13, 2005); Judy v. Pfizer, Ic., No. 4:05CV1208RWS, 2005 WL (E.D. Mo. Sept. 14, 2005); see also Kudse v. Liberty Mut. Is. Co., 411 F.3d 805, 12 I-House Defese Quarterly Witer 2008

3 806 (7th Cir. 2005); Plubell v. Merck & Co., Ic., 434 F.3d 1070 (8th Cir. 2006) (applyig the two-prog approach of Rule 15(c)(3), the court foud that the amedmet of a petitio to substitute a ew class represetative related back to the date of the origial petitio) or the law of the forum state [see, e.g., Prime Care of Northeast KS, LLC v. Humaa Is. Co., 447 F.3d 1284, 1286 (10th Cir. 2006) ( whether a amedmet is distict eough to give rise to a ew commecemet date is properly gauged by the forum state s law goverig the relatioback of pleadig amedmets ); Braud v. Tras. Serv. Co. of Ill., 445 F.3d 801 (5th Cir. 2006) (relatio-back aalysis cotrols for all amedmets except those addig ew defedats, which are always treated as commecig a ew actio for purposes of CAFA); Hall v. State Farm Mut. Auto. Is. Co., No , 2007 WL , at *3,.1 (6th Cir. Ja ) ( This rule has apparetly bee adopted by every court that has addressed the questio. ], to determie if a post-act amedmet is mior eough to relate back to the origial complait or substatial eough to be cosidered a ew actio that should be subject to the Act. Uder this aalysis, [I]f a post-cafa ameded complait relate[s] back to a pre-cafa origial complait, a federal court will ot have jurisdictio uder CAFA. Liae S. Pichuk, The Class Actio Fairess Act The Meaig of Commeced After Oe Year, Product Liability Law & Strategy, at 5 (August 2006). Amog courts that geerally apply the relatio-back test, there is a split of authority regardig whether the relatio-back test should be applied to amedmets that add ew defedats to a case. Some courts have foud that such amedmets are de facto commecemets of ew actios. See, e.g., Braud, 445 F.3d at Other courts have held that the relatio-back test should be dispositive of ay amedmet, whether it adds ew defedats or ot. See, e.g., Prime Care, 447 F.3d at Where the relatio-back test is applied, the courts egage i a fact-specific determiatio from which few geeralities ca be made. I at least oe case, for example, the court foud that a amedmet to a class actio complait did ot relate back to the origially filed complait where the class defiitio was dramatically expaded. See Seterfitt v. Sutrust Mortg., Ic., 385 F. Supp. 2d 1377, 1380 (S.D. Ga. 2005). Nor did the court fid that the relatio back doctrie applied i a class actio case where a ew plaitiff ad ew claims were added to the origial complait. See Heaphy v. State Farm Mutual Automobile Is. Co., No. C RBL, 2005 WL (W.D. Wash. Aug. 15, 2005). Other courts, however, have foud that amedmets expadig a class defiitio did relate back to the origial complait, thereby precludig the applicatio of the Class Actio Fairess Act. See Schilliger v. Uio Pacific Railroad Co., 425 F.3d 330, 334 (7th Cir. 2005); Schorsch v. Hewlett-Packard Co., 417 F.3d 748 (7th Cir. 2005). Despite some of the ucertaities of the relatio-back test, it is a familiar paradigm that gives plaitiffs some level of predictability whe weighig the risks ad beefits of amedig a pre-act complait. Jurisdictioal Burde of Proof The questio of which party bears the burde of provig that federal jurisdictio exists uder the Act was, at first, hotly cotested. Uder the Act, there are several prerequisites to the ivocatio of federal jurisdictio. Accordig to the Act, the district courts shall have origial jurisdictio over ay civil actio i which the matter i cotroversy exceeds the sum or value of $5,000,000, exclusive of iterest ad costs, ad the claims of the idividual class members shall be aggregated to determie whether the matter i cotroversy exceeds the sum or value of $5,000,000. If this moetary threshold is satisfied, the case ca be filed i federal court, or removed to federal court, so log as the citizeship of at least oe member of the plaitiff class is diverse from at least oe defedat. If oe-third or fewer of the proposed class members are citizes of the origial forum state, the federal court must retai jurisdictio ad hear the case. Accordig to the Act, the federal courts must declie to exercise jurisdictio over a class actio i which (1) greater tha two-thirds of the members of all proposed plaitiff classes are citizes of the state i which the actio was origially filed, (2) at least oe defedat is a defedat from whom sigificat relief is sought, whose coduct forms a sigificat basis for the claims asserted ad who is a citize of the state i which the actio was origially filed, (3) pricipal ijuries resultig from the alleged coduct or ay related coduct of each defedat were icurred i the state where the actio was origially filed ad, (4) durig the three-year period precedig the filig of that class actio, o other class actio has bee filed assertig the same or similar factual allegatios agaist ay of the same defedats. I additio, uder the Act, a district court shall declie to exercise jurisdictio over a class actio i which two-thirds or more of the plaitiffs ad the primary defedats are citizes of the state i which the actio was origially filed. As a practical matter, the focus of these iquiries is o the plaitiff, ad therefore, the plaitiff is i the best positio to provide the iformatio ecessary to determie if the Act ca be ivoked to allow a case to be filed i or removed to federal court. Ad ideed, the legislative history of the Act states: [T]he amed plaitiffs should bear the burde of demostratig that the removal was improvidet (i.e., that the applicable jurisdictioal requiremets were ot satisfied.) Ad if a federal court is ucertai about whether [the amout i cotroversy requiremet is met], the court should err i favor of exercisig jurisdictio over the case. S. Rep. No , at 42 (2005), reprited i 2005 U.S.C.C.A.N. 3. O that basis, several courts that iitially addressed this issue cocluded that where the defedats ivoked the Act for removal jurisdictio, the Act placed the burde o the plaitiffs to disprove the defedats assertio that the jurisdictioal requiremets were met. See, e.g., Berry v. America Express Publishig Corp., 381 F. Supp. 2d 1118 (C.D. Cal. 2005); Harvey v. Blockbuster Ic., 384 F. Supp. 2d 749 (D.N.J. 2005); Yeroushalmi v. Blockbuster Ic., No. CV AHM(RCX), 2005 WL (C.D. Cal. July 11, 2005). However, despite the aforemetioed legislative history ad early decisios, most removig defedats these days have foud little success i shiftig the burde of proof from themselves to the plaitiffs who are seekig remad. See, e.g., Blockbuster, Ic. v. Galeo, 472 F.3d 53 (2d Cir. 2006); Abrego Abrego v. The Dow Chemical Co., 443 F.3d 676 (9th Cir. 2006); Brill v. Coutrywide Home Loas, Ic., 427 F.3d 446 (7th Cir. 2005). As I-House Defese Quarterly Witer

4 C l a s s A c t i o s the Nith Circuit Court of Appeals stated i Abrego Abrego v. The Dow Chemical Co., The legal cotext i which the 109th Cogress passed CAFA ito law features a logstadig, ear-caoical rule that the burde o removal rests with the removig defedat. 443 F.3d at 684. The Abrego court followed the reasoig of the Seveth Circuit Court of Appeals i Brill, 427 F.3d 446, which wared agaist relyig o the legislative history of the Act: Thirtee Seators siged this report ad five voted ot to sed the proposal to the floor. Aother 82 Seators did ot express themselves o the questio; likewise 435 Members of the House ad oe Presidet kept their silece. Brill, 427 F.3d at 448. I Blockbuster, Ic. v. Galeo, 472 F.3d at 58, the Secod Circuit Court of Appeals further oted: [T]he Seate report was issued te days after the eactmet of the CAFA statute, which suggests that its probative value for diviig legislative itet is miimal. Although the Brill, Abrego ad Galeo courts ackowledged that legislative history may be used to clarify ay ambiguity that exists i a law, these courts did ot fid that ay such ambiguity existed i the Act s silece o the jurisdictioal issue. This lack of ambiguity was highlighted i a recet opiio issued by the Uited States District Court for the Easter District of Missouri. I Judy v. Pfizer, Ic., 2005 WL , the court had the followig to say about the jurisdictioal burde of proof: At the time of the eactmet of the CAFA, Cogress was presumed to be aware of the well settled case law regardig the burde of proof i removed actios. A court may resort to legislative history to iterpret a statute whe it cotais a ambiguity. Abset some ambiguity i the statute, there is o occasio to look to legislative history. The omissio of a burde of proof stadard i the CAFA does ot create a ambiguity ivitig courts to scour its legislative history to decide the poit. By failig to specifically address the burde of proof i the Act, especially i light of discussig the issue i a Committee Report, Cogress is deemed to have ot iteded to chage the settled case law o that issue. Had Cogress wished to chage which party bears the burde of proof i a removal actio uder CAFA it could have explicitly doe so. Judy, 2005 WL , at *2 (citatios omitted). See also Lowery v. Al. Power Co., 483 F.3d 1184 (11th Cir. 2007). Though early all courts are ow i agreemet that the defedats bear the burde of provig federal jurisdictio, the quatum of proof ecessary to prove jurisdictio i the federal courts is still subject to iterpretatio. I Brill, the amout i cotroversy was relatively easy to ascertai. The defedat allegedly set usolicited faxes to a class of over 100 plaitiffs i violatio of the Telephoe Cosumer Protectio Act, 47 U.S.C. 227, which allowed for damages of $500 per fax a amout that could be trebled if the defedat acted i kowig disregard for the law. The defedat admitted to sedig at least 3,800 faxes to the plaitiff class. Based o the umber of faxes, ad the treble damages provisio, simple multiplicatio showed that the plaitiffs award could reach $5.7 millio. The Seveth Circuit held: The questio is ot what damages the plaitiff will recover, but what amout is i cotroversy betwee the parties. That the plaitiff may fail i its proof, ad the judgmet be less tha the threshold (ideed, a good chace that the plaitiff will fail ad the judgmet will be zero) does ot prevet removal. Oce the propoet of jurisdictio has set out the amout i cotroversy, oly a legal certaity that the judgmet will be less forecloses federal jurisdictio. Brill, 427 F.3d at 449. Iterestigly, oe such legal certaity that the Brill court discussed was if the plaitiffs had expressly capped their claim i the complait at $5 millio. Id. Accordig to the Brill court, such a cap would preclude jurisdictio uder the Act. Id. Such a cap was recetly successful i precludig jurisdictio uder the Act, where the plaitiff s complait stated, i relevat part: The total amout i cotroversy as to the Plaitiff ad each member of the Proposed Class does ot exceed sevetyfour thousad ie-hudred ad ietyie dollars ($74,999) each, exclusive of iterest ad costs. Plaitiff disclaims ay compesatory damages, puitive damages, declaratory, ijuctive, or equitable relief greater tha ($74,999) per idividual Class member. Plaitiff ad the Proposed Class limit their total class wide claims to less tha four millio-ie hudred ad iety-ie thousad ie hudred ad iety-ie dollars ($4,999,999.00). Smith v. Natiowide Property ad Cas. Is. Co., 2007 WL , at *1 (6th Cir. Oct. 1, 2007). Relyig o the familiar priciple of law that the plaitiff is master of his or her ow complait, the Sixth Circuit Court of Appeals foud that this disclaimer effectively preveted a federal court from exercisig jurisdictio of the case uder the Act. Smith v. Natiowide Property ad Cas. Is. Co., 2007 WL , at *5; but see Williamso v. Aeta Life Is. Co., 481 F.3d 369 (6th Cir. 2007) (fidig that, despite the plaitiffs attempts to limit damages i its complait, the defedat successfully ivoked jurisdictio uder the Act by showig that damages were evertheless likely to exceed the jurisdictioal amout.). I Abrego, ulike Brill, there was o clear way to quatify the plaitiffs damages. Abrego was a product liability case i which the defedats attempted to remove the suit as a mass actio uder the Act. As a mass actio the defedats had the burde of provig both the $5 millio aggregate amout i cotroversy as well as that oe or more of the idividual claims exceeded $75,000. Abrego, 443 F.3d at 687. The plaitiffs i Abrego umbered 1,160, ad i order to meet jurisdictioal requiremets i state court, their claims had bee pled as amoutig to more tha $25,000 each. The Nith Circuit coceded that the umber of plaitiffs, multiplied by the jurisdictioal amout pled, clearly proved that more tha $5 millio i aggregate was i cotroversy. The court held, however, that the defedats failed to prove that eve a sigle plaitiff s claim exceeded the $75,000 threshold, ad therefore, the case was ot removable uder the Act. Despite the fact that the plaitiffs i Abrego claimed serious ijuries icludig sterility, ad sought puitive damages, attoreys fees, costs ad iterest, the Nith Circuit rejected this as evidece that their idividual claims exceeded $75,000. Accordig to the court, [A]ttemptig to recite some magical icatatio, either overcome[s] the strog presumptio agaist removal jurisdictio, or satisf[ies] 14 I-House Defese Quarterly Witer 2008

5 [the defedat] s burde of settig forth, i the removal petitio itself, the uderlyig facts supportig its assertio that the amout i cotroversy exceeds $75,000. Abrego, 443 F.3d at 689 (quotatio marks ad citatios removed). The court further rejected the defedat s request for limited jurisdictioal discovery ito the uderlyig facts regardig the plaitiffs ijuries. The court reasoed that plaitiffs have o icetive to coceal the value of their claims to the cotrary, they have every reaso to provide the defese with the iformatio ecessary to evaluate the ature ad extet of the plaitiffs ijuries ad damages, chief amog them the elimiatio of the risk that the case will be removed late i the proceedigs if they fail to do so. Accordig to the court, jurisdictioal discovery o the damages issue was uecessary sice the Act allows a defedat to remove a case withi 30 days of receivig documets that support removal jurisdictio. Abrego, 443 F.3d at 691 (citig 28 U.S.C. 1453(b)). While most courts are i agreemet that the party seekig removal bears the burde of provig federal jurisdictio, most courts also agree that the party resistig removal (usually the plaitiff) has the burde of provig whether oe of the Act s exceptios to jurisdictio applies. Accordig to the Act, the federal courts must declie to exercise jurisdictio over a class actio i which greater tha two-thirds of the members of all proposed plaitiff classes are citizes of the state i which the actio was origially filed, at least oe defedat is a defedat from whom sigificat relief is sought, whose coduct forms a sigificat basis for the claims asserted ad who is a citize of the state i which the actio was origially filed, pricipal ijuries resultig from the alleged coduct or ay related coduct of each defedat were icurred i the state where the actio was origially filed ad, durig the three-year period precedig the filig of that class actio, o other class actio has bee filed assertig the same or similar factual allegatios agaist ay of the same defedats. I additio, uder the Act, a district court shall declie to exercise jurisdictio over a class actio i which two-thirds or more of the plaitiffs ad the primary defedats are citizes of the state i which the actio was origially Carve-Outs uder the Act As oted above, the Class Actio Fairess Act does ot apply to ay class actio i which the primary defedats are states, state officials, or other govermetal etities agaist whom the district court may be foreclosed from orderig relief or the umber of members of all proposed plaitiff classes is less tha 100. The Act also does ot apply to ay class actio that solely ivolves a claim cocerig a covered security as that term is defied uder Sectio 16(f)(3) of the Securities Act of 1933 ad Sectio 28(f)(5)(E) of the Securities Exchage Act of 1934; that relates to the iteral affairs or goverace of a corporatio or other form of busiess eterprise ad that arises uder or by virtue of the laws of the state i which such busiess or corporatio is icorporated or orgaized; or that relates to the rights, duties ad obligatios relatig to or created by or pursuat to ay security as defied uder Sectio 2(a)(1) of the Securities Act of Several district courts have addressed the Act s carve-out provisios with little difficulty i their applicatio. I I re Textaier Partership Sec. Litig., No. C MMC, 2005 WL (N.D. Cal. July 27, 2005), a Califoria federal district court foud that a breach of fiduciary duty claim brought by limited parters agaist geeral parters for the proposed sale of partership assets fell uder both the iteral affairs or goverace carve-out to the Act as well as the carve-out for a claim relatig to the rights, duties (icludig fiduciary duties), ad obligatios relatig to or created by or pursuat to ay security ). Id. As such, the case was remaded to state court. Similarly, a federal district court i Teessee did ot fid the Act s carve outs ambiguous ad remaded claims for breach of fiduciary duties ad self-dealig i coectio with a corporate merger, statig: It seems clear to the court that ay class actio solely based upo breach of fiduciary duty i coectio with a security is, ideed, a carve out from the Class Actio Fairess Act. This case is such a case, ad, therefore, its removal from state court based upo the Act was improper. Idi The party resistig removal (usually the plaitiff) has the burde of provig whether oe of the Act s exceptios to jurisdictio applies. filed. The Class Actio Fairess Act does ot apply to ay class actio i which the primary defedats are states, state officials, or other govermetal etities agaist whom the district court may be foreclosed from orderig relief or the umber of members of al proposed plaitiff classes is less tha 100. The Act also does ot apply to ay class actio that solely ivolves a claim cocerig a covered security as that term is defied uder Sectio 16(f)(3) of the Securities Act of 1933 ad Sectio 28(f)(5)(E) of the Securities Exchage Act of 1934; that relates to the iteral affairs or goverace of a corporatio or other form of busiess eterprise ad that arises uder or by virtue of the laws of the state i which such busiess or corporatio is icorporated or orgaized; or that relates to the rights, duties ad obligatios relatig to or created by or pursuat to ay security as defied uder Sectio 2(a)(1) of the Securities Act of See Hart v. FedEx Groud Package System Ic., 457 F.3d 675, 680 (7th Cir. 2006); Frazier v. Pioeer Americas LLC, 455 F.3d 542, 546 (5th Cir. 2006); Evas v. Walter Idustries, Ic., 449 F.3d 1159, 1165 (11th Cir. 2006). To date, the Seveth, Fifth ad Eleveth Circuit Courts of Appeals have ruled (though ot all for the same reasos) that oce a defedat adequately proves that federal jurisdictio exists uder the Act, the burde the shifts to the plaitiff to show that a case should be remaded to state court based o, for example, the home-state cotroversy or local cotroversy exceptios i the Act. Each of these appellate courts drew support from a recet U.S. Supreme Court decisio that held that a oppoet to removal uder 28 U.S.C. 1441(a) must prove that there is a express exceptio to removability. Breuer v. Jim s Cocrete of Brevard, Ic., 538 U.S. 691, 123 S. Ct (2003). I-House Defese Quarterly Witer

6 C l a s s A c t i o s aa State Dist. Coucil of Laborers ad Hod Carriers Pesio Fud v. Real Care Goup, Ic., No. Civ. 3: , 2005 WL , at *1 (M.D. Te. Aug 18, 2005). Additioally, a federal district court i Idaho has held that a complait agaist directors for breach of fiduciary duty to shareholders falls uder oe of the carve-outs to the Act. Carmoa v. Bryat, 2006 WL (D. Idaho April 19, 2006). Courts have focused o the substace, rather tha the form of claims, i applyig the carve-outs. For example, i Williams v. Texas Commerce Trust Co. of New York, the plaitiff made state law claims for breach of fiduciary duties, breach of cotract, egligece, equitable restitutio, accoutig for profits, impositio of costructive trust ad civil cospiracy followig a corporate bakruptcy. Williams, No CV-W-GAF, 2006 WL , at *2 (W.D. Mo. Ju. 15, 2006). The court rejected the defedats argumet that the claims related to a bakruptcy proceedig ad istead foud that all of the claims arose out of the rights ad duties betwee the plaitiffs, as debeture holders, ad the defedats, as ideture trustees. Because those duties were created by or pursuat to a security ad cocered a covered security, the court foud that the case fell withi the Act s carve-out provisios. See also Estate of Pew v. Cardarelli, No. 5:05- CV-1317, 2006 WL (N.D.N.Y. Dec. 6, 2006) (Complait for defedats alleged violatio of Sectio 349 of New York Geeral Busiess Law i coectio with the sale of securities falls uder carve-out to the Act). Mass Actios I Abrego v. The Dow Chemical Co., 443 F.3d 676 (9th Cir. 2006), discussed above for its aalysis of the burde of proof i establishig jurisdictio uder the Act, the Nith Circuit was the first court of appeals to iterpret the Act s mass actio provisio. Uder the Act, [T]he term mass actio meas ay civil actio i which moetary relief claims of 100 or more persos are proposed to be tried joitly o the groud that the plaitiffs claims ivolve commo questios of law or fact. 28 U.S.C. 1332(d)(11)(B)(i). A mass actio is removable as if it were a class actio, except that jurisdictio shall exist oly over those Courts have focused o the substace, rather tha the form of claims, i applyig the carve-outs. plaitiffs whose claims i a mass actio satisfy the jurisdictioal amout requiremets uder subsectio (a) [for traditioal diversity jurisdictio]. Id. The Abrego court remaded the case based o the defedats failure to establish that ay plaitiffs satisfied the $75,000 jurisdictioal amout uder subsectio (a). Abrego, 443 F.3d at Nevertheless, the court complaied a great deal i dicta about the bewilderig laguage of the Act s mass actio provisio. Id. at 686. The crux of the problem idetified by the Nith Circuit is how the class actio jurisdictioal requiremets are to be recociled with the jurisdictioal requiremets of idividual claims. For example, the court oted: The statute does ot explai the relatioship betwee the 100 or more persos ad $5,000,000 aggregate amout i cotroversy requiremet o the oe had, ad the limitatio of jurisdictio to those plaitiffs whose claims i a mass actio satisfy [the i excess of $75,000] jurisdictioal amout requiremet, o the other. Id. at 681. The defedats i Abrego argued that the court should accept jurisdictio over the case ad the remad the cases of idividual plaitiffs who did ot meet the idividual jurisdictioal requiremets, such as havig a claim i excess of $75,000. The court oted that this solutio oly raises more questios, such as: What happes if idividual remads uder the 1332(a) proviso brig the aggregate amout i cotroversy below $5,000,000, or the umber of plaitiffs below 100, or destroys miimal diversity? Id. at 682. The court also oted the laguage of the Act, statig: a mass actio shall be deemed to be a class actio removable uder paragraphs (2) through (10) if it otherwise meets the provisios of those paragraphs was clumsy ad led to osesical results. Id. at (O the issue of osesical results, it is worth otig here that the Third Circuit Court of Appeals recetly foud what it described as a typographical error i the Act that purported to require that a appeal be filed ot less tha 7 days after etry of the order. Morga v. Gay, 466 F.3d 276, 277 (3d Cir. 2006) (citig 28 U.S.C. 1453(c)(1)). The court held: Because the ucotested legislative itet behid 1453(c) was to impose a seve-day deadlie for appeals, we coclude that the statute as writte cotais a typographical error ad should be read to mea ot more tha 7 days. Id.) For example, paragraph 8 refers to etry of a class certificatio order, which, by defiitio, would ot occur i a mass actio case. More fudametally, the Abrego court poited out that either the Act s mass actio provisios, or the refereced removal provisios, provide for origial jurisdictio. The court explaied: Because Cogress did ot refer to origial jurisdictio i either the mass actio provisio itself, or i 1453, the text does ot aswer the importat questio of whe there is origial federal jurisdictio over mass actios, ad what the scope of that origial jurisdictio might be. This gap casts ito doubt the iteractio betwee the mass actio provisio ad a host of other statutes that assume origial jurisdictio as a startig poit. Id. at 682. The Nith Circuit s somewhat scathig critique leaves a very ucertai path for defedats ad courts who are wrestlig with the Act s mass actio provisios i the future. Coclusio The case law iterpretig the Class Actio Fairess Act will udoubtedly cotiue to evolve. Although some issues, like the commecemet issue, are fairly well settled, there are umerous other provisios of the Act that have yet to be addressed by the courts. Although it is difficult to predict which portio of the Act will serve as the ext battlegroud betwee the plaitiffs bar ad the defese bar, oe thig is certai. Future applicatio of the Act will keep lawyers ad judges busy for may years to come. 16 I-House Defese Quarterly Witer 2008