United States: Class Action Fairness Act Roundup

Keywords: Class Action Fairness Act 2005, CAFA, mass actions

Nine years after the Class Action Fairness Act of 2005 ("CAFA") was enacted, parties continue to fight over when federal jurisdiction over significant class and mass actions is proper.

In this post, we provide a rundown of some of the most important recent cases involving CAFA.

1. Tenth Circuit greenlights gerrymandered mass action—at least for now.  We've blogged before about plaintiffs' attempts to circumvent CAFA's provisions for the removal of 100-plaintiff mass actions by subdividing mass actions into parallel state-court cases of fewer than 100 plaintiffs each.  CAFA allows removal of these kinds of parallel cases if they are "proposed to be tried jointly."  But plaintiffs often contend—sometimes dubiously—that they are seeking coordinated treatment solely for pretrial purposes in order to avoid removal.  In Parson v. Johnson & Johnson, the Tenth Circuit nevertheless held that district courts must accept these representations and remand the parallel actions to state court until such time as the plaintiffs actually "seek to join the claims for trial."

That result strikes us as both unfortunate and inconsistent with the Eighth Circuit's decision in Atwell v. Boston Scientific.  Judge Anderson observed in a concurring opinion that the plaintiffs' claims "cannot and, in my estimation, will not be addressed in the state court in these cases without some form of proposal (and that is all it takes), either implicit or explicit, for some sort of joint trial."  If so, why allow the jurisdictional doubt to linger until the last moment, when there is (inevitably) a demand for a joint trial?  At that point, a defendant will likely remove the case to federal court, and the federal court will surely review the state court's pretrial decisions—meaning that the pretrial motions practice in state court was a waste of time.  It would also be more consistent with CAFA's purposes—including Congress's desire to prevent plaintiffs from using lax state-court procedures to exert unfair settlement pressure on defendants.  We will continue to watch this circuit split, and will report on the Ninth Circuit's en banc decision in Romo v. Teva Pharmaceuticals, Inc. and Corber v. Xanodyne Pharmaceuticals, Inc., which were argued together on June 19, 2014 and address similar issues.

2. Plaintiff can't use federal-court dismissal to revive state-court class action.  CAFA allows removal of class actions only if, among other things, the amount in controversy exceeds $5 million.  But what if some—or all—of the claims are then dismissed after removal?  Does that reduce the amount in controversy below $5 million and cause a federal court to lose jurisdiction?

Thankfully—and consistent with common sense—the answer is "no," as the Eighth Circuit recently confirmed in Grawitch v. Charter Communications, Inc.  In that case, after a class action was removed to federal court, the court granted the defendants' motion to dismiss for failure to state a claim.  The plaintiff then moved to remand, evidently hoping to get a "do over" in state court under a more lenient pleading standard.  The district court denied remand.  And the Eight Circuit affirmed, explaining that "we measure the district court's jurisdiction at the time of removal."  Grawitch is of a piece with Hoffman v. Nutraceutical Corp., the Third Circuit decision in which the plaintiff tried to avoid CAFA jurisdiction by arguing that his own putative class action couldn't be certified under governing federal precedents.  (That argument still makes us chuckle.)

3. Facially defective claims still count toward CAFA's amount–in-controversy requirement.  A similar question arises when the plaintiff's state-court complaint asserts claims that a district court considers to be so obviously meritless that they inevitably would be dismissed in the future.  Should a court count those claims in determining whether the amount in controversy exceeds $5 million?

Recognizing that jurisdictional lines should be bright, the Eleventh Circuit recently held that such claims should be counted.  In McDaniel v. Fifth Third Bank, the district court had remanded the case to state court, believing that plaintiff's "fraud claims were 'deficient on their face'" and therefore did not count towards CAFA's amount-in-controversy requirement.  The Eleventh Circuit vacated the district court's order, ruling that district courts should "only consider the amount  [that] the plaintiff has placed in controversy, not the amount the plaintiff is likely to recover."  Because the plaintiff "could" theoretically recover on the fraud claims, even if it was unlikely that the plaintiff "would actually recover," the fraud claims had to be included in determining whether the amount in controversy exceeded $5 million.

4. Fifth Circuit holds that CAFA jurisdiction extends to individual actions severed from a class action.  Once a class action has been properly removed under CAFA, what should the federal district court do with any individual actions that are later severed from that class action?  The Fifth Circuit recently held that the individual cases should remain in federal court rather than remanding them to state court.

In Louisiana v. American National Property & Casualty Co., the defendant insurers had removed a class action to federal court under CAFA.  A merits question was then certified to the state supreme court, which confirmed that the key insurance coverage issue at stake in the class action required individualized consideration.  The plaintiffs therefore filed over 1,500 individual amended complaints, which the district court severed from one another and remanded to state court on the assumption that CAFA no longer provided jurisdiction.

The Fifth Circuit reversed, holding that if the initial removal is proper under CAFA, subsequent events do not defeat removal.  The panel acknowledged that a previous Fifth Circuit decision had stated that severed actions must have an independent jurisdictional basis.  Honeywell Int'l, Inc. v. Phillips Petroleum Co., 415 F.3d 429 (5th Cir. 2005).  But the panel explained that Honeywell applied only to cases in which the district was exercising supplemental jurisdiction over the severed claim.  Because CAFA provides original federal jurisdiction, Honeywell was inapplicable.

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