Class Action Fairness Act's Impact Internationally

(The Class Action Fairness Act of 2005: Impact on American Court Cases)


Introduction

Historically, class action lawsuits in the United States have served the purpose of litigating disputes for groups of individuals whose causes of action share enough common features so that it makes sense to combine their claims into a single case. This accomplishes several purposes. Among the purposes of class action lawsuits is to allow individuals who might not possess the financial resources to bring their cases to court to receive justice. At the same time, rulings of class action lawsuits have the potential to protect individuals who might otherwise face similar circumstances in the future.

Nonetheless, class action lawsuits have faced heavy criticism, especially from Republicans in the United States, who cite that many class action lawsuits produce large settlements, but that relatively small amounts ever actually reach the plaintiffs. In response to this, the Bush administration pushed, and Congress enacted, the Class Action Fairness Act of 2005, also known as CAFA. While CAFA has changed the way class action suits are tried, some of its effects have not been what either proponents or opponents of the law expected.

The text below represents an interpretation and commentary on CAFA. It is not intended to represent legal opinion or legal advice. For specific questions concerning CAFA or any class action cases, please consult with an attorney.


What is CAFA?

CAFA represents a reinterpretation of Rule 23 of the Federal Rules of Civil Procedure, and expands the guidelines which determine whether class action lawsuits involving interstate plaintiffs or defendants remain in state court. One clear intended purpose of CAFA was to remove more class action lawsuits to federal court, which are often viewed as being more sympathetic to defendants.

The most significant aspects of the changes enacted by CAFA are summarized below:

  • Any defendant can remove a diversity case to federal court
  • Consent from all defendants is no longer required for removal of a case
  • The one-year time limit for removal was removed
  • Appellate courts may review decisions to grant or deny motions to remand cases

In addition, while cases remanded to federal court apply substantive state law, cases would operate under stricter federal procedural rules, sometimes resulting in no class certification whatsoever. Opponents claim that this was also an intended result of CAFA. For instance, if CAFA had required Sav-On Drug Stores v. Superior Court, 17 Cal. Rptr. 3d 906 (2004) had been tried in federal court, California's policy favoring class actions would not have applied, and the case might have had a much different outcome.


Forum Shopping

Traditionally, class action suits were tried in state courts. Plaintiffs could file their lawsuits with any state court that had jurisdiction, basically, any state where either one of the plaintiffs or one of the defendants was located. As a result, plaintiffs often engaged in forum shopping - seeking out state courts viewed as being sympathetic to plaintiffs' claims. One of the projected effects of CAFA was that more class action lawsuits would be tried in federal court, rather than state courts, thereby reducing forum shopping.

The actual effect has been that plaintiffs have engaged in forum shopping on the federal circuit level. Specifically, plaintiffs have often asked courts to apply the laws of a single state to a diversity class action lawsuit, a request which to which the Ninth Circuit has been particularly receptive. One example is Masters v. DirecTV, No. 08-55825, 2009 WL 4885132 (9th Cir. Nov. 19, 2009) (unpublished), which applied California state law to all DirecTV customers nationwide because DirecTV has its headquarters in California.


Class Splitting and the $5 Million Hurdle

Another strategy plaintiffs use to get around CAFA is class splitting. Because CAFA does not ordinarily apply to small classes (under 100 plaintiffs), plaintiffs' attorneys often split clients into classes of 99 plaintiffs and remanding the case to state court. The Ninth Circuit in particular has been responsive to this strategy as well.

Another unintended effect is that consumer driven class action lawsuits barred by state law may proceed in federal court under CAFA because of an interpretation of the Supreme Court case Shady Grove Orthopedics Assoc's, P.A. v. Allstate Ins. Co., decided in March 2010. For instance, consumer protection laws often prohibit class action lawsuits. However, the Rules Enabling Act states that the Federal Rules of Civil Procedure "shall not abridge, enlarge or modify any substantive right," including the right to file class action litigation.

Defendants have also found unintended consequences to the $5 million threshold for remanding cases to federal count under CAFA. One requirement for removal of cases to federal court is that defendants must provide an estimate of class members to calculate possible damage amounts. However, to do so, defendants risk making an admission of wrongdoing, which essentially proves the plaintiff class' case.


For Further Reading

  • Annual Workplace Class Action Litigation Report, 2011 [seyfarth.com/dir_docs/news_item/74ac8de1-0a63-40b9-9d3f-050b85f00d80_documentupload.pdf]
  • A Class Act? [law.com/special/supplement/future_lit/class_act.shtml]
  • The Class Action Fairness Act, Five Years Later [mayerbrown.com/news/The-Class-Action-Fairness-Act-five-years-later-04-12-2010/]
  • The Class Action Fairness Act of 2005 [gpo.gov/fdsys/pkg/PLAW-109publ2/pdf/PLAW-109publ2.pdf]
  • Commentary on the Class Action Fairness Act [impactfund.org/downloads/Resources/CAFA_Commentary.pdf]
  • Erin Brockovich, Drop Dead [salon.com/2005/02/12/class_action/]
  • A $5 Million Class Action Controversy? Go to Federal Court [trialandappeal.blogspot.com/2005/11/5-million-class-action-controversy-go.html]
  • Impact of the Class Action Fairness Act of 2005 uscourts.gov/uscourts/RulesAndPolicies/rules/
  • Shady Grove and CAFA: Opening the Federal Door for Class Actions Barred By States [ellislawhorne.com/about-studies-17.html]
  • A Step Up in Class [abajournal.com/magazine/article/a_step_up_in_class/]
  • Understanding the Class Action Fairness Act of 2005 [classactionprofessor.com/cafa-analysis.pdf]

Author Bio

Guest Post was contributed by Daniela Levett on behalf of Pryers Solicitors. Daniela is a freelance writer with extensive legal background as an attorney. She enjoys writing for various online legal publications.