The Journal of the Antitrust and Unfair Competition Law Section of the State Bar of California

Transcription

1 Chair s Column Bruce Lee Simon Vol 15, No. 1 Spring/Summer 2006 The Journal of the Antitrust and Unfair Competition Law Section of the State Bar of California Of Class Action Fairness, and California Competition Policy: Convergence or Conundrum? Articles Part I:The Class Action Fairness Act of 2005: Guidance for the Bench and Bar THE CLASS ACTION FAIRNESS ACT OF 2005: ONE YEAR LATER Thomas S. Hixson IMPLICATIONS OF THE CLASS ACTION FAIRNESS ACT FOR ANTITRUST CASES: FROM FILING THROUGH TRIAL Lisa Saveri A STATE-BY-STATE LOOK AT THE LAW ON INDIRECT PURCHASER DAMAGE ACTIONS Gerald E. Hawxhurst Part II: California Competition Policy: Hearings of the State Senate Judiciary Subcommittee on Anti-Competitive Conduct in the Marketplace MARKET COMPETITIVENESS: DOES STATE ANTITRUST LAW NEED TO BE UPDATED? Don T. Hibner, Jr. and Heather M. Cooper Testimony Presented by: Hon.Vaughn Walker, U.S. District Court Judge, Northern District of California Kathleen Foote, California Attorney General s Office (Antitrust) Thomas A. Papageorge, Los Angeles District Attorney s Office (Antitrust) Professor Carl Shapiro, U.C. Berkeley (Haas School of Business) Professor Howard A. Shelanski, U.C. Berkeley (Boalt Hall School of Law) Professor Mark A. Lemley, Stanford Law School Bonny E. Sweeney, Lerach, Coughlin, Stoia, Geller et al., LLP Daniel J. Mogin,The Mogin Law Firm, PC J.Thomas Rosch, Latham & Watkins, LLP Don T. Hibner, Jr., Sheppard, Mullin, Richter & Hampton, LLP Thomas Greene, California Attorney General s Office (Antitrust) Editor s Column Kathleen J.Tuttle

2 THE CLASS ACTION FAIRNESS ACT OF 2005: ONE YEAR LATER Thomas S. Hixson * I. INTRODUCTION The Class Action Fairness Act of significantly expanded federal jurisdiction over class actions and enacted reforms that apply to coupon settlements in class actions in federal court. CAFA s proponents predicted the law would address some of the most egregious problems in class actions, 2 such as the perceived concentration of class action cases in courts widely considered pro-plaintiff, 3 the approval of settlements that benefit class counsel but confer no real benefits on class members, 4 and federalism concerns when nationwide class actions are adjudicated in the courts of a single state. 5 Opponents criticized the legislation as injurious to consumers and claimed that the large-scale transfer of class actions from state to federal court would usurp traditional notions of federalism and significantly increase the workload of the federal courts. 6 It is too soon to gauge which of these views will ultimately prove correct. However, now that just over a year has passed since the enactment of CAFA, one thing is already clear: There is a significant amount of litigation over how courts should interpret and apply the statute.to date, the most hotly contested issues have been what it means to commence an action under CAFA since the act applies only to any civil action commenced on or after February 18, and which party bears the burden of proof to show that a class action is removable to federal court under CAFA. But courts are now also grappling with other issues that will continue to be fleshed out in the years to come, such as the amount of discovery that should be allowed to prove or disprove that federal removal jurisdiction exists under the statute, the meaning of the specific exceptions to CAFA jurisdiction, and the more general question of how much deference should be given to the Senate Judiciary Committee s report in interpreting the statute. This article summarizes the provisions of CAFA and surveys the federal court decisions issued to date interpreting and applying the statute. * Thomas S. Hixson is a partner in the San Francisco office of Bingham McCutchen LLP and a member of the firm s Antitrust and Trade Regulation Practice Group. He graduated from Harvard Law School in 1997 magna cum laude. 1 Pub.L. No (Feb. 18, 2005) 119 Stat. 4 (codified in scattered sections of 28 U.S.C.). 2 Sen.Rep. No , 1st Sess., p. 5 (2005), reprinted in 2005 U.S. Code Cong. & Admin. News, p. 3 (Senate report). 3 Id. at p Id. at pp Id. at pp Id. at pp. 85, (minority views of Sens. Leahy, Kennedy, Biden, Feingold and Durbin). 7 Pub.L. No , 9 (Feb. 18, 2005) 119 Stat. 4. 1

3 II. SUMMARY OF CAFA A. Background: Class Actions in State Court 1. The Diversity Statute Class actions asserting state-law claims have traditionally been heard in state court because of three basic features of the federal diversity statute. First, the diversity statute has an amount in controversy requirement, currently set at $75, This monetary threshold was intended to ensure that small cases arising under state law would not be in federal court, notwithstanding the diversity of citizenship between the parties. Under the non-aggregation rule, courts normally applied the amount in controversy requirement to the claim of each individual plaintiff, as opposed to adding up the claims of every member of the proposed plaintiff class. 9 Thus, if a multi-state class of 10 million people sued a credit card company for imposing hundreds of dollars in fraudulent charges on each customer s bill, that case would normally fail the amount in controversy requirement because no named plaintiff s claim would exceed $75,000 even though the case as a whole might be seeking damages of several billion dollars. Conversely, if an individual sued an out-of-state telephone company whose service truck hit him or her in a car accident, causing $80,000 in damage, that case would satisfy the amount in controversy requirement and be removable to federal court. Second, courts interpreting the diversity statute developed the complete diversity rule. Under this rule, every named plaintiff had to be from a different state from every defendant. 10 This rule often made it easy for plaintiffs counsel to avoid diversity jurisdiction even where the amount in controversy requirement was meant. In a tort case, for example, a local plaintiff could sue an out-of-state pharmaceutical company for manufacturing a defective product, then add the local pharmacy that sold the product as a co-defendant. Provided the claim against the local pharmacy were not a sham, the presence of one in-state defendant would destroy diversity jurisdiction. Third was the home state rule. Even if a case satisfied the amount in controversy requirement and the complete diversity rule, if the defendant were sued in its home state, it could not remove the case to federal court. 11 As the Senate Judiciary Committee noted in its report on CAFA, [i]f all it takes to keep a class action in state court is to name one local retailer, it is no surprise that few interstate class actions meet the complete diversity requirement U.S.C. 1332(a). 9 See Zahn v. International Paper Co. (1973) 414 U.S. 291, See Snyder v. Harris (1969) 394 U.S. 332, U.S.C. 1441(b). 12 Senate report, supra, at p

4 2. Problems with Class Actions in State Court The Senate Judiciary Committee report on CAFA identified a number of perceived flaws in state court class actions as part of the rationale for the statute. One was essentially a structural flaw: A nationwide class action by definition seeks to litigate the rights of people in all 50 states, yet if the case is in state court, the result may be that the courts of one state are effectively setting national policy.the Senate Committee report cited the example of a case in an Alabama county court on behalf of more than 20 million people alleging that the design of federally mandated airbags is faulty. 13 The report argued that [f]rom the standpoint of federalism, this suit defies logic. Why should an Alabama state court tell 20 million people in all 50 states what kind of airbags they can have in their cars? 14 Added to this structural problem was a belief that state courts faced with nationwide class actions sometimes ignored differences in the law between the 50 states, thus effectively overriding laws enacted by 49 other state legislatures. 15 A second concern was the apparent permissiveness that some state court judges had in approving class action settlements that offer little if any meaningful recovery to the class members and simply transfer money from corporations to class counsel. 16 The Senate Committee report listed a number of examples of state court-approved settlements that awarded class counsel significant fees and provided nearly worthless, or even negative, benefits to class members. 17 A third and more global concern the Committee identified was an overall perception of abusive state-court litigation. The Committee cited examples of drive-by class certifications, in which a state court would certify a nationwide class before the defendant had even learned of the lawsuit, sometimes on the same day the case was filed. 18 The Committee also cited a judicial blackmail effect when a class is certified in a meritless or even frivolous case: when plaintiffs seek hundreds of millions of dollars in damages, basic economics can force a corporation to settle the suit, even if it is meritless and has only a five percent chance of success. 19 Added to this concern was the widespread belief that some state courts had become magnets for nationwide class actions due to their pro-plaintiff reputations. The Senate Committee report singled out Madison County, Illinois as a particularly notorious example of this Id. at p Ibid. 15 Id. at p Id. at p Id. at pp Id. at p Id. at p Id. at p. 13 (citing a 5000% increase in the number of nationwide class actions filed in Madison County between 1998 and 2003); see also id. at pp

5 B. Changes Enacted in CAFA CAFA attempts to remedy the above perceived problems by doing two things: It expands federal diversity jurisdiction over class actions, and it adopts a Consumer Bill of Rights applicable to class action settlements in federal court. 21 The following is a summary of the major provisions of the act. 1. Expansion of Federal Diversity Jurisdiction a. Five Million Dollars and Minimal Diversity CAFA s most significant provision is the expansion of federal diversity jurisdiction in class action cases. The statute provides that [t]he district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which... any member of a class of plaintiffs is a citizen of a State different from any defendant. 22 This provision abrogates the complete diversity requirement for class actions and replaces it with a minimal diversity requirement: Diversity is established as long as a single member of the alleged plaintiff class is from a different state from any one of the defendants. Almost every multistate class action against a U.S. company will satisfy this minimum diversity requirement. 23 CAFA also abolishes the non-aggregation rule for class actions. 24 It provides that [i]n any class action, the claims of the individual class members shall be aggregated to determine whether the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interests and costs. 25 Finally, CAFA repeals the home state exception for the removal of class actions. A class action may be removed to federal court under CAFA without regard to whether any defendant is a citizen of the State in which the action is brought. 26 b. Exceptions to CAFA Jurisdiction (1) Home State CAFA contains two exceptions to the above broad grant of federal jurisdiction for cases in which a defendant is sued in its home state. First, a district court shall decline to exercise 4 21 CAFA also requires the Judicial Conference to prepare a report on class action settlement, together with recommendations for best practices courts can use in awarding attorneys fees and approving settlements. Pub.L. No , 6 (Feb. 18, 2005) 119 Stat U.S.C. 1332(d)(2)(A). 23 Minimum diversity is also established if any member of the plaintiff class is a foreign state or a citizen of a foreign state and a defendant is a citizen of any state, or vice versa. (28 U.S.C. 1332(d)(2)(B), (C).) In other words, CAFA treats the world outside of the United States as collectively the 51 st state for diversity purposes. 24 Exxon Mobil Corp. v. Allapattah Servs., Inc. (2005) 125 S.Ct. 2611, (Exxon Mobile) U.S.C. 1332(d)(6) U.S.C. 1453(b). In addition, a single defendant can remove a class action under CAFA without the concurrence of the other defendants. (28 U.S.C. 1453(b).)

6 jurisdiction in a class action in which two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed. 27 Second, [a] district court may, in the interests of justice and looking at the totality of the circumstances, decline to exercise jurisdiction over a class action in which greater than one-third but less than two-thirds of the members of all proposed plaintiff classes in the aggregate and the primary defendants are citizens of the State in which the action was originally filed. 28 CAFA then lists six factors the district court should consider in determining whether to exercise this discretionary remand.they are: whether the claims asserted involve matters of national or interstate interest ; whether the forum state s law will apply to the case; whether the lawsuit was pleaded in a manner that seeks to avoid Federal jurisdiction ; whether there is a nexus between the forum state and the parties and alleged harm at issue in the case; whether the alleged class members are relatively concentrated in the forum state; and whether, during the preceding three years, one or more other class actions asserting similar claims on behalf of similar plaintiffs have been filed. 29 According to the Senate Judiciary Committee report, the overall purpose of these six factors is to evaluate whether the class action is predominantly interstate in character. 30 (2) Local Controversy In addition, CAFA contains an exception to federal jurisdiction for class actions with a truly local focus. 31 The local controversy exception provides that the district court must decline to exercise jurisdiction over a class action in which: greater than two-thirds of the members of all proposed plaintiff classes are citizens of the forum state; there is at least 1 defendant from whom significant relief is sought and whose alleged conduct forms a significant basis for the plaintiffs claims and who is also a citizen of the forum state; the principal injuries arising from each defendant s conduct occurred in the forum state; and during the preceding three years, no similar class action has been filed against any of the defendants. 32 The local controversy exception overlaps to a certain extent with the second of the two home state exceptions. The primary differences between the two are that the former is U.S.C. 1332(d)(4)(B), italics added U.S.C. 1332(d)(3) U.S.C. 1332(d)(3)(A)-(F). 30 Senate report, supra, at p Id. at p U.S.C. 1332(d)(4)(A). 5

7 mandatory and is less concerned with the citizenship of all of the primary defendants. Arguably, if the requirement that all primary defendants be citizens of the forum state were eliminated from the second of the two home state exceptions, the local controversy exception would be unnecessary, since any case that met the criteria for that exception would be a strong candidate for discretionary remand under the home state exception. (3) State Action, Corporate Governance CAFA also contains exceptions for state action and corporate governance cases. CAFA jurisdiction does not apply to a class action in which the primary defendants are States, State officials, or other governmental entities against whom the district court may be foreclosed from ordering relief. 33 It also does not apply to a class action concerning a covered security as defined by the Securities Act of 1933 and the Securities Exchange Act of 1934, or that relates to the internal affairs or governance of a corporation or other form of business enterprise or that relates to the rights, duties [] including fiduciary duties, and obligations relating to any security. 34 c. Procedures for Removal CAFA also creates some new procedural rules that apply to the removal of class actions. 35 Under CAFA, any single defendant may remove a class action to federal court; the concurrence of the other defendants is no longer necessary. 36 The deadline to remove a case is still 30 days after it becomes removable, but the one-year limit from the date the case first commenced no longer applies. 37 This means that if a complaint is amended very late in the course of a state-court proceeding, such as on the eve of trial, the case may then be removed if it satisfies the other prerequisites of CAFA jurisdiction. In addition, removability is independent of whether or when class certification is granted. 38 So the denial of class certification in federal court does not mean that CAFA jurisdiction disappears over a case. In addition, CAFA creates a procedure for interlocutory appeal of an order granting or denying a motion to remand a class action. It provides that a court of appeals may accept an appeal... if application is made to the court of appeals not less than 7 days after entry of the order. 39 (The Ninth and Tenth Circuits have concluded this is a typo and that Congress meant not more than 7 days after entry of the order. See part III.B, below.) If the Court of Appeals accepts the appeal, it ordinarily has 60 days in which to render a decision U.S.C. 1332(d)(5) U.S.C. 1332(d)(9). 35 See 28 U.S.C U.S.C. 1453(b). 37 Ibid U.S.C. 1332(d)(8) U.S.C. 1453(c)(1) U.S.C. 1453(c)(2).The Court of Appeals may give itself a 10-day extension for good cause, and the 60-day period may also be extended with the consent of all parties. (28 U.S.C. 1453(c)(3).) If the Court of Appeals does not render a decision within the prescribed deadline, the appeal is automatically denied. (28 U.S.C. 1453(c)(4).)

8 2. The Consumer Bill of Rights Section 3 of CAFA addresses a distinct issue from removal jurisdiction. It enacts a Consumer Bill of Rights for class actions in federal court. 41 There are four aspects to the Consumer Bill of Rights. First, it regulates coupon and net financial loss settlements. CAFA provides that [i]n a proposed settlement under which class members would be awarded coupons, the court may approve the proposed settlement only after a hearing to determine whether, and making a written finding that, the settlement is fair, reasonable, and adequate for class members. 42 Because Federal Rule of Civil Procedure 23 already requires such a hearing and findings for all class action settlements, 43 the only change this makes to existing law is that the findings of fairness and adequacy must now be in writing for coupon settlements. For net financial loss settlements that is, one in which the attorney fees the class members must pay exceed their monetary recovery the court may approve such a settlement only if the court makes a written finding that nonmonetary benefits to the class member substantially outweigh the monetary loss. 44 Second, the Consumer Bill of Rights enacts a substantial change to contingent attorney fee awards in coupon settlements. It provides that the portion of any attorney s fee award to class counsel that is attributable to the award of... coupons shall be based on the value to the class members of the coupons that are redeemed, not issued. 45 Alternatively, in a coupon settlement, an attorney fee award may be based upon the amount of time class counsel reasonably expended working on the action. 46 Third, the Consumer Bill of Rights enacts a prohibition on geographic discrimination. It provides that a court may not approve a proposed settlement that provides for the payment of greater sums to some class members than to others solely on the basis that the class members to whom the greater sums are to be paid are located in closer geographic proximity to the court. 47 Finally, the Consumer Bill of Rights contains an interesting provision for the notification of government officials of proposed class action settlements. It provides that within 10 days of filing a proposed settlement in court, each defendant participating in the settlement must serve the appropriate federal official and the appropriate state official in every state in which a class member resides a notice of the proposed settlement. 48 The appropriate federal official is the Attorney General, except when the defendant is a depository institution, in which case it is the primary federal regulator of the defendant Senate report, supra, at p U.S.C. 1712(e). 43 See Fed. Rules Civ.Proc., rule 23(e)(1)(C) U.S.C U.S.C. 1712(a), italics added U.S.C. 1712(b)(1). CAFA also permits a mixed basis award, where some of the attorney fee is based on the value of the coupons redeemed and some on time spent on the case. (28 U.S.C. 1712(c).) U.S.C U.S.C. 1715(b) U.S.C. 1715(a)(1). 7

9 The appropriate state official means the primary regulator or licensor of the defendant if the subject matter of the class action implicates their regulatory responsibility; and if no such official exists, then the state attorney general. 50 III. INTERPRETATIONS OF CAFA In the year since CAFA s enactment, courts have been called upon to construe a number of the provisions in the statute. All of the reported decisions to date concern the expansion of diversity jurisdiction over class actions. As class actions proceed through the federal courts under CAFA, we can expect to see cases interpreting and applying the Consumer Bill of Rights.This section summarizes the principal cases that have interpreted CAFA to date and some of the issues with which courts have had to grapple. A. What Is a Class Action? A threshold question for courts to address is what a class action is for purposes of CAFA. The statute provides that the term class action means any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action. 51 There is also a provision in CAFA that states that certain types of mass actions qualify as class actions. 52 A mass action is one in which the monetary claims of 100 or more people are to be tried jointly, and in which each plaintiff s claim satisfies the normal $75,000 amount in controversy requirement. 53 At least one court has held that CAFA s definition of a class action which requires the case to be filed under rule 23 or a state equivalent means that the complaint must actually invoke the pertinent class action statute or rule, and that it is not sufficient for the lawsuit to merely recite factual allegations of harm to many individuals. 54 Note that CAFA s definition of a class action is circular: CAFA defines a class action as a lawsuit brought by a representative as a class action. 55 In California, there will be little doubt that a class action means a suit brought under Code of Civil Procedure section 382 or section 1781 of the Civil Code, part of the Consumer Legal Remedies Act. But consider a lawsuit in which the named plaintiff sues as a representative of the general public. Is that a class action within the meaning of CAFA? Prior to the adoption of California Proposition 64, private plaintiffs could sue on behalf of the general public under Business and Professions Code sections and 17535, and public prosecutors are still entitled to do that today. CAFA includes an exception to the definition of a mass action for any civil action in which 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 U.S.C U.S.C. 1332(d)(1)(B) U.S.C. 1332(d)(11) U.S.C. 1332(d)(11)(B)(i). 54 Tedder v. Beverly Enterprises, Inc. (E.D.Ark. Dec. 12, 2005) 2005 WL , * U.S.C. 1332(d)(1)(B). 8

10 action. 56 The Senate Judiciary Committee report states that this provision was specifically designed to eliminate CAFA jurisdiction in representative claims under California s unfair competition law. 57 It is a clumsily written exception, however, since it merely removes representative UCL actions from the definition of a mass action and does not technically answer the question whether a representative action is nonetheless a class action. 58 One court has concluded that a consumer protection action filed by a state attorney general parens patriae does not qualify as a class action under CAFA, although the court did not base its decision on the exception to the definition of a mass action for claims pursued on behalf of the general public, nor on CAFA s definition of a class action. 59 Instead, the court relied on statements made by the proponents of CAFA during a debate in the Senate to conclude that parens patriae actions are outside the definition of a class action. This leaves unresolved whether there may be other types of private representative actions that could fall within CAFA s definition of a class action. B. Commencement By far the most litigated issue to date under CAFA has been the application of the statute to cases filed before its enactment. CAFA states that it shall apply to any civil action commenced on or after the date of enactment of this act. 60 The question, then, is what it means to commence a civil action. In Bush v. Cheaptickets, Inc., 61 the Ninth Circuit held that the date of commencement of a civil action is determined by state law. Bush was a class action filed under California s unfair competition law in Los Angeles Superior Court on February 17, 2005, the day before CAFA became law. 62 It was removed to federal court on March 28, 2005 after CAFA took effect. The Ninth Circuit, however, rejected the assertion that the date of removal was when the action commenced, holding that CAFA s commenced language surely refers to when the action was originally commenced in state court. It is axiomatic that an individual or entity U.S.C. 1332(d)(11)(B)(ii)(III). 57 Senate report, supra, at p Perhaps Congress simply assumed that a representative claim on behalf of the general public would not be a class action, but that causes one to wonder why it was concerned the case might somehow be deemed a mass action. A mass action is defined as a case where the monetary relief claims of 100 or more persons are proposed to be tried jointly. (28 U.S.C. 1332(d)(11)(B)(i).) Yet the exception for representative actions applies only to claims asserted on behalf of the general public (and not on behalf of individual claimants... (28 U.S.C. 1332(d)(11)(B)(ii)(III), italics added.) Arguably, such a representative action would not be a mass action anyway. 59 Harvey v. Blockbuster, Inc. (D.N.J. 2005) 384 F.Supp.2d 749, (Harvey). 60 Pub.L. No , 9 (Feb. 18, 2005) 119 Stat. 4; see also Exxon Mobil, supra, 125 S.Ct. at p ( CAFA...is not retroactive. ). 61 (9 th Cir. 2005) 425 F.3d 683, 686 (Bush). 62 One court has rejected the argument that CAFA became law on February 17, 2005, the date Congress passed it. Quoting the Schoolhouse Rock television episode I m Just a Bill, the court held that CAFA became law on February 18, 2005, the date the President signed the statute into law. (Lander & Berkowitz, P.C. v.transfirst Health Servs., Inc. (E.D.Mo. 2005) 374 F.Supp.2d 776, 777 fn. 1 [ In that episode, Bill sang, I m just a bill/yes, I m only a bill/and if they vote for me on Capitol Hill/Well, then I m off to the White House/Where I ll wait in line/with a lot of other bills/for the president to sign/and if he signs me, then I ll be a law/how I hope and pray that he will/but today I am still just a bill. ], italics added in original.) 9

11 may not remove a dispute before it has commenced in state court. 63 Accordingly, the court held that [a] state s own laws and rules of procedure determine when commencement occurs. 64 Because California law provides that [a]n action is commenced... when the complaint is filed, 65 the Ninth Circuit held that [i]n California, as in the federal courts, a suit is commenced upon filing, 66 and it affirmed the district court s order remanding the case to state court. The First, Seventh, Eighth and Tenth Circuits, and a number of district courts, have agreed with the Ninth Circuit that the date of commencement of a civil action must be determined by state law. 67 This does not mean, however, that all cases filed in state court before February 18, 2005, are unremovable under CAFA. In Connecticut, for example, it is service of process not the filing of the complaint that commences a suit, so an action filed pre-cafa could potentially be commenced after it, if the complaint were served on or after February 18, Similarly, Kansas law provides that an action commences at the time of filing only if process if served within 90 days thereafter. 69 If more than 90 days passes, the action is commenced upon service of process. 70 In Dinkel v. General Motors Corp., the district court held that because of this quirk in Kansas law, that case could be removed under CAFA because the complaint was filed before CAFA was enacted and some of the defendants were served with process both after February 18, 2005 and more than 90 days after the complaint was filed. 71 A related question is whether the amendment of an existing complaint constitutes the commencement of a civil action within the meaning of CAFA. Here, the Ninth Circuit has not yet expressed a view, but the majority of courts to have addressed the question have held that an amendment to a complaint does not commence a civil action if the amendment 63 Bush, supra, 425 F.3d at p Ibid. 65 Code Civ. Proc, Bush, supra, 425 F.3d at p Plubell v. Merck & Co., Inc. (8 th Cir. 2006) 434 F.3d 1070, 1071 (Plubell); Natale v. Pfizer, Inc. (1 st Cir. 2005) 424 F.3d 43, 44 (Natale); Pritchett v. Office Depot, Inc. (10 th Cir. 2005) 420 F.3d 1090, 1094 (Pritchett); Schorsch v. Hewlett-Packard Co. (7 th Cir. 2005) 417 F.3d 748, (Schorsch); Pfizer, Inc. v. Lott (7 th Cir. 2005) 417 F.3d 725, 726; In re Expedia Hotel Taxes & Fees Litig. (W.D.Wash. 2005) 377 F.Supp.2d 904, 906; Patterson v. Morris (E.D.La. 2006) 337 B.R. 82, See Pritchett, supra, 420 F.3d at p Dinkel v. General Motors Corp. (D.Me. 2005) 400 F.Supp.2d 289, Ibid. 71 Id. at pp. 291, 293. Alabama law provides that a case is commenced at the time of filing only if it is filed with the bona fide intention of having it immediately served (whether or not it is in fact immediately served). In at least two instances, a federal court found a case removable under CAFA because although the complaint had been filed pre-cafa, the plaintiff failed to supply the state court clerk s office with sufficient properly completed copies of the summons to enable service, leading the federal court to conclude that the plaintiff had not entertained a bona fide intent to serve the complaint immediately. (See Main Drug, Inc. v. Aetna U.S. Healthcare, Inc. (M.D.Ala. Dec. 14, 2005) 2005 WL , *4-*5; Eufaula Drugs, Inc. v.tdi Managed Care Servs., Inc. (M.D.Ala. Dec. 14, 2005) 2005 WL , *3.) 10

12 relates back to the original, pre-cafa complaint. 72 The rationale for this holding is that as a matter of regular legal practice, most amendments to pleadings do not commence new litigation: Plaintiffs routinely amend their complaints, and proposed class definitions, without any suggestion that they have restarted the suit for a restart (like a genuinely new claim) would enable the defendant to assert the statute of limitations. 73 These workaday changes routine in class suits are not the equivalent of filing a new case. 74 On the other hand, [a]mendments could in principal initiate litigation ; for example, a defendant added after February 18 [2005] could remove because suit against it would have been commenced after the effective date, and tacking a wholly distinct claim for relief onto an old suit likewise might commence a new proceeding. 75 Courts applying the relation-back test have followed the standards in Federal Rule of Civil Procedure 15(c), or comparable state-law equivalents, to determine if a post-cafa amendment relates back to the pre-cafa complaint. 76 Rule 15(c) provides that an amended pleading relates back to the original pleading when 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, or when the amendment changes the party... against whom a claim is asserted, but the new party had sufficient notice of the action that it will not be prejudiced and the new party knew or should have known that but for the plaintiff s mistake, it would have been named as an original party. 77 The relation-back standard resolves many of the common amendments to a complaint. For example, it establishes the standard notice and lack of prejudice 78 for determining when the addition of a new defendant will commence litigation. Judge Chesny in the Northern District of California applied this standard to hold that a post-cafa amendment did not commence new litigation where the original complaints named two nonexistent entities as trustees, and the amended complaint merely corrected a misnomer. 79 The Fifth Circuit has held that outside of the misnomer situation, a post-cafa amendment to the complaint that adds a new defendant generally does commence new litigation, because claims against a new party normally do not relate back to the original complaint Braud v.transport Serv. Co. of Illinois (5 th Cir. April 6, 2006) F.3d [2006 WL , *2-*4] (Braud); Knudsen v. Liberty Mutual Ins. Co. (7 th Cir. 2006) 435 F.3d 755, (Knudsen II); Plubell, supra, 434 F.3d at pp ; Schorsch, supra, 417 F.3d at p. 749; Knudsen v. Liberty Mutual Ins. Co. (7 th Cir. 2005) 411 F.3d 805, (Knudsen I); Plummer v. Farmers Group, Inc. (E.D. Okla. 2005) 388 F.Supp.2d 1310, (Plummer). 73 Knudsen I, supra, 411 F.3d at p Schorsch, supra, 417 F.3d at p Id. at p See, e.g., id. at pp (holding that state rather than federal practice must supply the rule of decision, but noting that Illinois has a relation-back rule that is functionally identical to Rule 15(c), however, so we need not fret over fine points ); Plubell, supra, 434 F.3d at p (applying the Missouri relation-back rule, but observing that the Missouri rule is derived from Federal Rule of Civil Procedure 15(c)). 77 Fed. Rules Civ.Proc., rule 15(c)(2)-(3). 78 Id., rule 15(c)(3) 79 Morgan v. American Int l Group, Inc. (N.D.Cal. Sept. 8, 2005) 2005 WL , *3 (Morgan); see also Schillinger v. Union Pac. Railroad Co. (7th Cir. 2005) 425 F.3d 330, 332 (no action commenced under CAFA where the apparent naming of a new defendant in plaintiff s amended complaint was a scrivener s error and... the expansion of the class was not significant ) (Schillinger). 80 Braud, supra, 2006 WL , at pp. *2-*4. 11

13 Several courts have held that an amendment to a complaint to add or substitute named plaintiffs in a class action is a routine change, relating back to original complaint. The Seventh Circuit explained that [s]ubstitution of unnamed class members for named plaintiffs who fall out of the case because of settlement or other reasons is a common and normally unexceptionable ( routine ) feature of class action litigation. 81 More difficult issues arise when claims or the class definition are expanded in a post- CAFA amended complaint. 82 In Schorsch v. Hewlett-Packard Company, 83 the original, pre- CAFA complaint alleged claims on behalf a class of people who purchased HP drum kits for use in its printers. A drum kit contains some of the drums and rollers that fuse the toner to the paper. As components wear out, the EEPROM chip tells the printer to stop working until a new drum kit has been installed. The plaintiff alleged that the use of the EEPROM chip deprived class members of the some of the use of a drum kit when it is wearing out but still could print lower-quality output. Post-CAFA, the plaintiff amended the complaint to represent a broader class of people who purchased all printer consumables that contain the EEPROM chip, such as toner cartridges and ink cartridges not just those who bought drum kits. 84 The amended complaint obviously broadened the proposed class, and thus HP s potential exposure in the case, but the Seventh Circuit held that the amendment nonetheless related back to the original complaint. It reasoned that [t]he propriety of using EEPROM chips is an all-or-none affair, so the original complaint provided HP sufficient notice of what was at issue to enable it to defend the claims asserted by the expanded class. 85 The Seventh Circuit followed this reasoning in the subsequent Schillinger v. Union Pacific Railroad Company decision, 86 which held that a post-cafa amendment to the complaint that turned a single-state class action into a nationwide class action was also insufficient to escape the relation-back test, where the challenged business practice allegedly occurred in every state. 87 The Seventh Circuit reached a contrary result in Knudsen v. Liberty Mutual Insurance Company, 88 however. In that case, the pre-cafa complaint alleged that Liberty Mutual paid unjustifiably little on claims for medical services under workers compensation and casualty policies. Post-CAFA, the plaintiffs obtained a default order on the merits and then a class certification order that applied not only to all insureds of Liberty Mutual, but also all of its affiliates and subsidiaries. The Seventh Circuit held that this expansion of the class commenced new litigation because Liberty Mutual does not adjust all demands for Phillips v. Ford Motor Corp. (7 th Cir. 2006) 435 F.3d 785, 787 (Phillips); see also Plubell, supra, 434 F.3d at pp ; Morgan, supra, 2005 WL , at p. *3. 82 There appears to be no dispute that amending the complaint to reduce the size of a proposed class does not commence new litigation. (See Boxdorfer v. DaimlerChrysler Corp. (C.D.Ill. 2005) 396 F.Supp.2d 946, 951 [amendment reducing the case from nationwide class action to only ten states], affd. sub nom. Phillips, supra, 435 F.3d 785.) 83 Schorsch, supra, 417 F.3d See id. at pp Id. at p Schillinger, supra, 425 F.3d Id. at p Knudsen II, supra, 435 F.3d 755.

14 payment of all of its affiliates policies, 89 and nothing in the original complaint indicated that Liberty Mutual s affiliates actions were at issue in the case, nor actions undertaken by subsidiaries before Liberty Mutual acquired the subsidiary. 90 The Court thus found the case removable under CAFA because a novel claim tacked on to an existing case commences new litigation. 91 However, the relation-back test may yield inconsistent results. In Plummer v. Farmers Group, Inc., 92 the original complaint sued the defendant insurers for breach of contract, alleging that they utilized a computer program known as CCC to determine the value of the Plaintiff s automobile, and that this computer program resulted in an unreasonably low evaluation of the total loss. 93 Post-CAFA, the plaintiff amended the complaint to add additional named plaintiffs, add causes of action for fraud and bad faith, and to turn it into a class action on behalf of a purported class of thousands of people. 94 The court determined that because the original and amended complaints both challenged the same low-balling procedure, the Defendants received notice that their adjustment process was being challenged. 95 But the court nonetheless found that the amended complaint did not relate back because the Plaintiffs have numerous differences. They all have separate contracts, for separate property, with differing monetary value. They are from many different states throughout the country, and perhaps beyond. 96 This analysis appears flatly inconsistent with the Seventh Circuit s application of the relation back test in Schiller and Schorsch. 97 Likewise, in Senterfitt v. Suntrust Mortgage, Inc., 98 the court expressly disagreed with the Seventh Circuit s application of the relation-back test to an amendment of the complaint that broadened the scope of the class. 99 Senterfitt held that amending the complaint to expand the time period of the class definition from individuals affected by the defendant s conduct in the preceding four years to the preceding 16 commenced new litigation, even though the amended complaint allege[d] the same systematic conduct set forth in the original complaint Id. at p Id. at pp Id. at p Plummer, supra, 388 F.Supp.2d Id. at p Id. at p Id. at p Ibid., italics added. At least one other court has taken Plummer s approach of determining relation-back by looking at the factual differences between the named plaintiffs rather than whether the original complaint put the defendant on notice of what conduct was challenged. (See Heaphy v. State Farm Mutual Automobile Ins. Co. (W.D. Wash. Aug. 15, 2005) 2005 WL [finding no relation back]; compare Adams v. Insurance Co. of N. Am. (S.D.W.Va. March 30, 2006) F.Supp.2d [2006 WL , *19] [finding relation back because [d]espite the addition of insureds, however profound, the claims, parties, and core issues remand the same ].) 97 Driving the point home, the Plummer court ended its analysis of the relation-back test by criticizing the test itself for its unpredictability. (Plummer, supra, 388 F.Supp.2d at p ) 98 (S.D. Ga. 2005) 385 F.Supp.2d 1377 (Senterfitt). 99 Id. at p fn. 3 (disagreeing with Schorsch). 100 Id. at p

15 In contrast to the above line of case law, there is a minority view that rejects the relation-back test entirely. 101 These courts have reasoned that Section 9 of CAFA does not speak in terms of litigation or claims being commenced after the effective date of the act. It states that CAFA shall apply to any civil action commenced on or after the date of enactment of this Act. 102 Based on this language, the argument against the relation-back test is that a civil action refers to the entire proceeding in a civil case...a claim or cause of action is asserted in and is a part of a civil action, but the term civil action is more encompassing it includes motions, discovery, and all other components of the proceeding....a civil action, viewed as the whole case, the whole proceeding, can be commenced only once. 103 In this view, it is simply irrelevant whether later-added claims or parties or class definitions relate back to the original complaint a civil action can never be commenced a second time. 104 C. Burden of Proof The second most litigated issue to date under CAFA is which party has the burden to prove that federal jurisdiction exists over a given class action that is, to prove whether the class action seeks more than $5 million, whether minimal diversity is present, and whether an exception to CAFA jurisdiction applies. The traditional rule is that the party invoking federal jurisdiction has the burden to prove that it is present. 105 CAFA, however, is silent on burden of proof. In the face of this statutory silence, some courts, including Judges Stotler and Matz in the Central District of California, have concluded that CAFA implicitly allocates the burden to the party opposing federal jurisdiction to prove that such jurisdiction is absent. 106 Courts adopting this view have relied heavily on the Senate Judiciary Committee report, which states 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. 107 Other courts, however, have attributed a different meaning to CAFA s silence: the traditional allocation of the burden of proof which rests on the party seeking federal jurisdiction remains. In adopting this view, the Seventh Circuit observed that [t]he rule that the proponent of federal jurisdiction bears the risk of non-persuasion has been around 101 See Weekley v. Guidant Corp. (E.D.Ark. 2005) 392 F.Supp.2d 1066, (Weekley); Comes v. Microsoft Corp. (S.D. Iowa 2005) 403 F.Supp.2d 897, 903 (Comes); Hensley v. Computer Sciences Corp. (W.D.Ark. March 15, 2006) 2006 WL , *3. Judge Illston s decision in Sneddon v. Hotwire, Inc. (N.D.Cal. June 29, 2005) 2005 WL , *3 does not explicitly discuss the relation-back test but appears to embrace the view that an action can only be commenced once. Note that Weekley and Comes are no longer good law because the Eighth Circuit subsequently adopted the relation-back test. (See Plubell, supra, 434 F.3d at pp ) 102 Pub.L. No , 9 (Feb. 18, 2005) 119 Stat. 4, italics added. 103 Weekley, supra, 392 F.Supp.2d at p See id.; Comes, supra, 403 F.Supp.2d at p Of course, a plaintiff who wants to be in federal court after CAFA can just dismiss the state action and re-file it in federal court. The federal action would then be treated as any new case. (Price v. Berkeley Premium Nutraceuticals, Inc. (E.D. Mich. Oct. 17, 2005) 2005 WL , *4.) 105 See Lujan v. Defenders of Wildlife (1992) 504 U.S. 555, See Berry v.american Express Publishing Corp. (C.D.Cal. 2005) 381 F.Supp.2d 1118, (Berry); Harvey, supra, 384 F.Supp.2d at p. 752; Yeroushalmi v. Blockbuster, Inc. (C.D.Cal. July 11, 2005) 2005 WL , *3-*4 (Yeroushalmi). 107 Senate report, supra, at p

16 a long time, 108 and that it continued to make[] practical sense in the CAFA context, where the removing defendant is far more likely than the plaintiff to have the information relevant to proving the removability of the case. 109 The Seventh Circuit attributed no weight to the Senate Judiciary Committee report on this issue, observing that in light of CAFA s silence on burden of proof, the report s discussion of that subject does not concern any text in the bill that eventually became law. 110 The Court went on to observe that 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. Thirteen Senators signed this report and five voted not to send the proposal to the floor. Another 82 Senators did not express themselves on the question; likewise 435 Members of the House and one President kept their silence. 111 Ultimately, the Court concluded that [t]o change such a rule i.e., that the proponent of federal jurisdiction bears the burden of proof Congress must enact a statute with the President s signature (or by a two-thirds majority to override a veto.) A declaration of 13 Senators will not serve. 112 The Ninth Circuit has agreed with the Seventh Circuit that the burden of proof remains on the party invoking federal jurisdiction. 113 The Court explained that the pre- CAFA diversity statute was also silent on burden of proof and that the burden was placed on the removing party by judicial construction. Since Congress was assumed to be aware of how courts had construed the diversity statute in the past, the Court took CAFA s silence on burden of proof to mean that the law had not changed. 114 The Ninth Circuit also alluded to an additional criticism of relying on the Senate Judiciary Committee report to conclude that CAFA changed the burden of proof to the party seeking remand. The committee issued the report on February 18, 2005, after CAFA had passed both Houses of Congress and on the same day the president signed it into law. 115 The report was consequently not available for consideration or discussion before enactment of CAFA. 116 Judge Alsup of the Northern District of California similarly observed that [t]here is thus no reason to think it played any role in legislators interpretation of the bill, their decisions about whether to support it or the president s conclusion that he should sign it Brill v. Countrywide Homes Loans, Inc. (7 th Cir. 2005) 427 F.3d 446, Id. at p Ibid. 111 Ibid. 112 Id. at p. 448; see also, e.g., Ongstad v. Piper Jaffray & Co. (D.N.D. 2006) 407 F.Supp.2d 1085, (following Seventh Circuit on burden of proof) (Ongstad). 113 Abrego Abrego v. Dow Chem. Co. (9 th Cir. April 4, 2006) F.3d [2006 WL , *5-*8] (Abrego Abrego). 114 Id. at p. * See Senate report, supra, p. 79 (additional views of Sen. Patrick Leahy). 116 Abrego Abrego, supra, 2006 WL , at p. * Hangarter v.the Paul Reverse Life Ins. Co. (N.D.Cal. Jan. 2006) 2006 WL , *2 (Hangarter). 15

17 D. Viewpoint Related to burden of proof is the question of viewpoint for the amount in controversy requirement. CAFA creates federal jurisdiction over class actions that have minimal diversity and in which the matter in controversy exceeds the sum or value of $5,000, But from whose perspective should the $5 million in controversy be valued? In cases in which the class seeks monetary relief, this is normally an academic question, since the amount of monetary relief sought is the amount in controversy. But in cases seeking injunctive relief, compliance with an injunction could impose significant financial costs on the defendant but translate into no monetary gain for the plaintiff (for example, an injunction against false advertising, or to change a business practice). In analyzing the amount in controversy for pre-cafa class actions, the Ninth Circuit held that the value of injunctive relief sought could not be determined by reference to its aggregate cost to the defendant. 119 The rationale for this holding was that adopting the defendant s viewpoint was basically the same as aggregation, 120 since it analyzed the impact on the defendant of relief awarded to the entire class. Following the enactment of CAFA, at least three district courts in the Ninth Circuit have held that the defendant s viewpoint can be used under CAFA in determining the amount in controversy for injunctive relief sought in a class action. 121 These courts have relied in part on the Senate Judiciary Committee report, which asserts that use of the defendant s viewpoint should be allowed under CAFA. 122 More significantly, however, these courts have pointed out that the plain language of CAFA expressly repeals the anti-aggregation rule in class actions, 123 which was the rationale for not using the defendant s viewpoint in the first place.thus, questions about the role of legislative history in interpreting CAFA and about whether the Senate report should be considered legislative history are less relevant to the issue of viewpoint determination. E. Satisfying the Burden of Proof, Jurisdictional Discovery Once courts have allocated the burden of proof and determined the appropriate viewpoint from which to value the amount in controversy, the next issue several of them have confronted is what type of showing is necessary to invoke or defeat CAFA jurisdiction and how much discovery should be allowed for parties to make that showing. Courts that have considered the question have concluded, consistent with pre-cafa case law, that the party with the burden to prove that the $5 million requirement has been satisfied need not show that the plaintiff will actually recover $5 million at trial. 124 In Brill v. Countrywide Home Loans, Inc., 125 the Seventh Circuit explained that under CAFA, [t]he U.S.C. 1332(d)(2). 119 Kanter v.warner-lambert Co. (9th Cir. 2001) 265 F.3d 853, 859; Snow v. Ford Motor Co. (9 th Cir. 1977) 561 F.2d 787, 789 (Snow). 120 Snow, supra, 561 F.2d at p See Rippee v. Boston Market Corp. (S.D.Cal. 2005) 408 F.Supp.2d 982, 984 (Rippee); Berry, supra, 381 F.Supp.2d at p. 1123; Yeroushalmi, supra, 2005 WL , at pp. *3-* See Senate report, supra, at pp See 28 U.S.C. 1332(d)(6). 124 Note that a plaintiff cannot avoid CAFA jurisdiction merely by disclaiming classwide damages in excess of $5 million. (See Yeroushalmi, supra, 2005 WL , at p. *10.) 125 Brill, supra, 427 F.3d