April 12, 2005
Private: Class Action Fairness Act: "Tort Reform" Under the Radar?
by Alex Coolman, editor-at-large
Civil procedure isn't just a way for professors to torture beleaguered 1Ls: it can also occasionally be a tool for making powerful changes to law without attracting a great deal of attention. That was the case with the Class Action Fairness Act, which President Bush signed into law February 18. Though the legislation represents the first prong of Bush's effort to, in his words, "end the lawsuit culture in our country," CAFA provoked relatively little curiosity in the press.
In a nutshell, the law makes it easier for class action cases to get removed from state to federal court, an arena that, according to the Washington Post, is "historically much less sympathetic to such litigation." CAFA accomplishes this by allowing the federal courts to exercise subject matter jurisdiction in cases with at least 100 plaintiffs and $5 million in controversy even when complete diversity between plaintiffs and defendants does not exist.
Is that change a big deal, or is it a big zero? Much discussion of the law seems to have concluded that, as a merely procedural modification, CAFA is basically innocuous. Brooklyn Law School Professor Anthony Sebok, writing on Findlaw, called the law "harmless," BusinessWeek called the 2003 incarnation of the bill "low profile" and "seemingly mundane" and Thomas Gottschalk, General Motors' executive vice president for law and public policy, concluded the law that was ultimately passed was little more than "a modest procedural step."
But CAFA, a law that was eight years in the making and was blocked by Democratic filibuster in the last two sessions of Congress, is not an academic exercise. The relaxation of the complete diversity requirement is intended to cut down on plaintiffs' ability to shop for litigation-friendly forums. In a place like Madison County, Illinois, which led the American Tort Reform Association's list of 2004 "judicial hellholes" and was the source of a $10.1 billion verdict in 2003 against Philip Morris, a small tweak to the laws could make a major difference.
Though from a defendant's point of view part of the appeal of federal court involves escaping from the clutches of certain state judges, perhaps the more powerful difference is procedural. Federal courts give close scrutiny to class certification under Rule 23 and grant defendants the ability, under 23(f), to file interlocutory appeals of such certification. O'Melveny & Myers attorney Jessica Davidson Miller, speaking at a March presentation on the law for the Washington Legal Foundation, (the webcast of which is archived here), noted that, in many state courts, the appeal of such certification is not typically permitted until the case has been adjudicated, a factor that encourages defendants to settle rather than risk the PR fiasco and shareholder dismay that a big judgment - even one that might be overturned or reduced on appeal - would typically generate.
"In the end," Miller said, "I think it's going to [make] a fundamental change on class action practice in the United States because you can't bring huge class actions and get a county judge somewhere in Illinois or Texas to just approve a completely unfair settlement."
Consumer, environmental and plaintiff's rights groups aren't underestimating the potential for CAFA to pack a punch either. Groups such as Greenpeace and the Sierra Club signed on to letters opposing the 2003 version of the law, and the Coalition to Stop Gun Violence and the Brady Campaign to Prevent Gun Violence branded this type of legislation "dangerous and unnecessary." The group Public Citizen characterized CAFA as "a green light to market fraud and deception" and claimed that it would produce a result of "many class action lawsuits . . . not be[ing] heard in either state courts or federal courts."
There are nuances to the law that may - depending on how they are interpreted by courts - leave some wiggle room for plaintiffs. One such loophole, the "home state" exception, provides that where more than one-third of the plaintiffs are from the state where the case is being brought, the case may be able to stay out of federal court. And once the percentage of plaintiffs from the forum state hits two-thirds, removal to fed court under CAFA is blocked. For that reason, courts are likely to start seeing a lot of suits where 67% of the plaintiffs are from a single state. Alternatively, plaintiffs' attorneys can file cases with only 99 plaintiffs or stipulated damages of $4,999,999 and thereby slip under the CAFA radar.
Defendants, meanwhile, are going to start deploying more maneuvers like the one followed by Blockbuster in fending off a Nassau County suit challenging the company's approach to its "no late fees" policy. The company filed court papers that "estimated that the suit seeks more than $5 million" and promptly invoked CAFA to yank the case into a New York federal court.
Despite the modest rhetoric that surrounds it, CAFA is a law that is clearly going to have an impact on the type of national-scale, high-dollar cases that have put the biggest dent in industry pocketbooks. In the 1999 case Avery v. State Farm, an Illinois jury handed down a $456 million verdict against State Farm Mutual Automobile Insurance for using inferior aftermarket parts to repair damaged vehicles - an award that rose to nearly $1.2 billion with punitive damages. Whether Avery was "a victory for consumers everywhere, and . . . a solid example of how [the] civil justice system works to make America safer" or an illustration of "the vast potential for class-action abuse that most appellate courts either won't or can't check" depends on who's doing the talking. But Miller said one thing is clear: After CAFA, "cases like Avery v. State Farm are history."