Removing class actions to federal court: A better way to handle the problem of overlapping class actions

Stanford Law Review

Volumn 57, Issue 5, 2005, Pages 1521-1556

  Morrison, Alan B ^a  

^a STANFORD LAW SCHOOL   (United States)

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EID: 33646054260     PISSN: 00389765     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (73)

1. S. 2062, 108th Cong. (2004).
2. See Letter from National Association of Manufacturers, to all Senators (July 6, 2004), reprinted in 150 CONG. REC. S7810 (daily ed. July 8, 2004) (statement of Sen. Dodd) ("S. 2062 does not make any changes to substantive law.").
3. The focus on making procedural changes as a means to alter substantive outcomes was tried after the Supreme Court's decision in Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997). The Committee on Civil Rules was urged to make a number of changes to Federal Rule of Civil Procedure 23 that would have made it much more difficult to certify a class under Rule 23(b)(3), but the committee declined to take that path.
4. The desirability of finding solutions to the problems resulting from overlapping class actions was explained in Rhonda Wassermam, Dueling Class Actions, 80 B.U. L. REV. 461 (2000), but the supporters of S. 2062 and its predecessors never limited their proposals to overlapping classes, perhaps because Wasserman's article suggests that the principal losers in overlapping class actions are not the defendants, but absent class members and the courts that have to deal with multiple class actions.
5. Rose v. Giamatti, 721 F. Supp. 906, 910 (S.D. Ohio 1989) (quoting Bank of the United States v. Deveaux, 9 U.S. 61, 87 (1809)).
6. In an effort to reduce the number of diversity cases in federal court, and thereby lessen the ability to engage in forum shopping, the American Law Institute and others have proposed that plaintiffs be forbidden from filing in federal court in their home states, to make the law symmetrical with the bar on defendants removing cases filed in their home states. See AM. LAW INST., STUDY OF THE DIVISION OF JURISDICTION BETWEEN STATE AND FEDERAL COURTS 12-14, 123-33 (1969). To date, Congress has not adopted that change.
7. 28 U.S.C. § 1332(a) (2000).
8. Act of Jul. 25, 1958, Pub. L. No. 85-554, § 2, 72 Stat. 415, 415.
9. Judicial Improvements and Access to Justice Act, Pub. L. No. 100-702, § 201 (a), 102 Stat. 4642, 4646 (1988).
10. Federal Courts Improvement Act of 1996, Pub. L. No. 104-317, § 205, 110 Stat. 3847, 3850.
11. 394 U.S. 332 (1969).
12. 414 U.S. 291 (1973).
13. Arguably, the requirement of complete diversity could also be considered a means of limiting diversity cases in federal court because it surely has that effect. Indeed, in some cases, plaintiffs name a same-state defendant so that removal is not possible. On the other hand, there is no indication that Congress has ever acted, or for that matter proposed to act, on the proposition that complete diversity is an effective means of limiting diversity cases in federal court. If complete diversity were eliminated, it is hard to tell how many cases now filed in state court would be handled in federal court. However, it is unlikely that the number is significant, given all the factors at play in the initial filing and subsequent removal decisions and the continued existence of the $75,000 requirement. Interestingly, the Court has not applied the complete diversity rule to all members of a proposed class, but instead has required only that all the named parties be diverse. See Supreme Tribe of Ben-Hur v. Cauble, 255 U.S. 356 (1921).
14. See infra notes 21-22 and accompanying text.
15. Judicial Improvements Act of 1990, Pub. L. No. 101-650, § 310(a), 104 Stat. 5089, 5113-14.
16. See Leonhardt v. Western Sugar Co., 160 F.3d 631, 641 (10th Cir. 1998); In re Abbott Labs., 51 F.3d 524 (5th Cir. 1995). Moreover, because in most class actions based on state law not even one class member has a $75,000 claim, defendants have had to argue that where there is a statutory claim for attorneys' fees, as there is in some state consumer protection laws, or where there is a claim for punitive damages (which "count" in meeting the $75,000 requirement), all of the fees and punitive damages should be attributed to the named plaintiff so that at least that one person gets to the requisite amount. Thus, even if the Court holds that Congress overruled Zahn, there would still be many class actions in which there would be no original or removal jurisdiction because no individual would have a claim of $75,000.
17. Free v. Abbott Labs., 529 U.S. 333 (2000).
18. Allapattah Servs. v. Exxon Corp., 333 F.3d 1248 (11th Cir. 2003), cert. granted in part, 125 S. Ct. 317 (2004).
19. Ford Motor Co. v. McCauley, 537 U.S. 1 (2002).
20. The ability to obtain an authoritative determination of state law by means of certification from a federal court is a matter of state law only. When this option is available, it is often available only when an appeals court, not a district court, makes the request. Since most class actions are settled or dismissed, rarely will the certification procedure be available to resolve state law ambiguities.
21. 304 U.S. 64 (1938).
22. There is an empirical study that concludes that defendants do benefit from removals in diversity cases, but it does not focus on class actions. See Kevin Clement & Theodore Eisenberg, Do Case Outcomes Really Reveal Anything About the Legal System? Win Rates and Removal Jurisdiction, 83 CORNELL L. REV. 581 (1998).
23. Forum shopping may also occur among federal courts or between one state system and another. Because the Class Action Fairness Bill would alter only federal/state forum shopping, this Article will not discuss these other varieties.
24. The bill contains various other provisions related to class actions, but they are unrelated to the issue of forum shopping and hence will not be discussed further. The removal provisions would also apply to certain mass actions, as defined in section 4(a)(11). Because that provision raises separate concerns, it will not be discussed, other than to note that, in my judgment, it is a further reason to oppose the bill.
25. See John H. Beisner & Jessica Davidson Miller, They're Making a Federal Case Out of It . . . in State Court, 25 HARV. J.L. & PUB. POL'Y 143 (2001).
26. Problems arise from "a handful of outlier State courts, certain county courts to be precise . . . [that] operate in a manner that deprives the rights of truly injured individual plaintiffs, as well as defendants." 150 CONG. REC. S7564 (daily ed. July 6, 2004) (statement of Sen. Hatch).
27. 28 U.S.C. § 1335 (2000).
28. See S. REP. NO. 106-420, at 14 (2000); Beisner & Miller, supra note 25, at 149; Victor E. Schwartz, Federal Courts Should Decide Interstate Class Actions: A Call for Class Action Diversity Jurisdiction Reform, 37 HARV. J. ON LEGIS. 483, 486 (2000).
29. 28 U.S.C. § 1441(b)(2000).
30. These provisions are actually more complicated, but using the one-primary-defendant test, if anything, understates the difficulty of a plaintiff satisfying this requirement. Because of these additional obstacles, nothing would be gained by parsing these requirements further to see what else is necessary to obtain a remand.
31. One of the examples given for a case that could go back to state court is a plant explosion or an oil spill, primarily injuring local plaintiffs. 150 CONG. REC. S7814-15 (daily ed. July 8, 2004) (statement of Sen. Chambliss). Leaving aside the issue of whether such a case could be maintained as a class action, especially if there are physical as well as property injuries involved, the remand rule would apply only if the plant were owned by a company that had its headquarters or state of incorporation in that state. I do not assume that the Senator who offered this example did so in bad faith; he simply did not understand how limited the remand provisions will be in practice.
32. 28 U.S.C. § 1447(d) (2000).
33. Cf. 28 U.S.C. § 1292(b) (2000); FED. R. CIV. P. 23(f).
34. S. REP. NO. 108-123, at 73 (2003). The report does not explain how that estimate was compiled or what assumptions underlay it, and so it is difficult to test its soundness. The number (either in relative or absolute terms) is certain to be significant, because only such a major shift could cause the business community to invest so much time, money, and political capital on these bills.
35. Id. at 74. That cost is for class actions, but it may include actions for injunctive relief, which are generally less expensive and time-consuming than damages class actions.
36. See 28 U.S.C. § 1391 (2000); see also ALA. CODE § 12-12-30 (1995); ALASKA STAT. § 22.10.030 (Michie 2004); ARIZ. REV. STAT. § 12-120.21 (2004); ARK. CODE ANN. § 16-55-213 (Michie 2003); CAL. CIV. PROC. CODE § 395 (West 2004); CONN. GEN. STAT. ANN. § 51-345 (West 2004); DEL. CODE ANN. tit. 10, § 9302 (1999); FLA. STAT. ANN. ch. 47.011 (West 2004); LA. CODE CIV. PROG. ANN. art. 593 (West 1999); MD. CODE ANN., CTS. & JUD. PROC. § 6-201 (2002); MASS. GEN. LAWS ch. 223, § 1 (1986); N.Y. C.P.L.R. 503(a) (McKinney 2004); OR. REV. STAT. § 14.080 (2001); 42 PA. CONS. STAT. § 931 (2002); TEX. CIV. PRAC. & REM. CODE ANN. § 15.003 (Vernon Supp. 2004-2005); VA. CODE ANN. § 8.01-257 (Michie 2000); WASH. REV. CODE § 3.66.040 (2003); W. VA. CODE § 56-1-1 (1997).
37. See Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947); In re Nine Mile Ltd., 692 F.2d 56, 61 (8th Cir. 1982); Graff v. Qwest Communications Corp., 33 F. Supp. 2d 1117, 1120-21 (D. Minn. 1999).
38. See In re Highway Accident Near Rockville, 388 F. Supp. 574 (J.P.M.L. 1975); In re Truck Accident Near Alamagordo, 387 F. Supp. 732 (J.P.M.L. 1975).
39. Individuals are citizens of the state of domicile. See Ellis v. Southeast Constr. Co., 158 F. Supp. 798, 801 (W.D. Ark. 1958); see also LINDA J. SILBERMAN & ALLAN R. STEIN, CIVIL PROCEDURE: THEORY AND PRACTICE 341 (2001). Corporations are citizens of both the state of incorporation and the principal place of business, often, but not always, different states. 28 U.S.C. § 1332(c)(1) (2000).
40. For purposes of this Article, I assume the existence of a number of situations where the asserted conflicts and duplication have actually arisen in the past and have caused not-insignificant difficulties. It is worth noting that, despite the obvious interest of the defense bar in producing studies documenting such problems, and their ready access to such information and the financial ability to pay for such studies, there is remarkably little empirical evidence to support even a removal bill designed to solve problems from multiple unremovable class actions. Indeed, if consumer, environmental, or labor groups asked Congress to make changes of this magnitude based on so little evidence, they would be sent packing until they produced the necessary studies.
41. 28 U.S.C. § 1446(b) (2000).
42. Francis E. McGovern, Rethinking Cooperation Among Judges in Mass Tort Litigation, 44 UCLA L. REV. 1851, 1858-68 (1997).
43. See Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 821-23 (1985).
44. See Beisner & Miller, supra note 25.
45. See TEX. CIV. PRAC. & REM. CODE ANN. § 15.003 (Vernon Supp. 2004-2005) (providing for the immediate appeal of a trial court decision as to whether a plaintiff has properly established venue and authorizing courts to dismiss cases without sufficient connection to Texas to establish venue).
46. Editorial, Class-Action Unfairness, N.Y. TIMES, July 6, 2004, at A18,
47. reprinted in 150 CONG. REC. S7567 (daily ed. July 6, 2004) (statement of Sen. Leahy) (arguing that the "core defect" of S. 2062 is "that it would move almost all major class-action lawsuits to overburdened federal courts from state courts").
48. 150 CONG. REC. S7706 (daily ed. July 7, 2004) (statement of Sen. Dodd);
49. 150 CONG. REC. S7565 (daily ed. July 6, 2004) (statement of Sen. Hatch) (referring to a "delicate bipartisan compromise").
50. S. REP. NO. 108-123, at 75 & n.3 (2003); Letter from Ken Cook, Executive Director, Environmental Working Group, et al., to Senator Patrick Leahy (July 7, 2004), reprinted in 150 CONG. REC. S7816-17 (daily ed. July 8, 2004) (statement of Sen. Leahy).
51. See WILLIAM REHNQUIST, 2002 YEAR-END REPORT ON THE FEDERAL JUDICIARY, http://www.supremecourtus.gov/publicinfo/year-end/2002year-endreport.html (last updated Feb. 5, 2005) (noting that Congress had approved fewer than half of the requested additional district court judgeships that had been pending for several years and had approved no new bankruptcy judgeships). Since these cases could be removed to any district and be transferred anywhere, it would also be difficult to figure out which district would be appropriate for any new judges, in contrast to the need for more judges to handle drug cases or immigration matters, where the need is usually district-specific.
52. Alliance for Justice, FAQs on Judicial Selection, at http://www.allianceforjustice.org/judicial/about/frequently.html (2002);
53. Bureau of Labor Statistics, U.S. Dep't of Labor, Judges, Magistrates, and Other Judicial Workers, at http://www.bls.gov/oco/ocos272.htm (last modified Mar. 21, 2004).
54. Letter from Representative Kip Holden, Louisiana House of Representatives, Chair, National Conference of State Legislatures, AFI Law and Justice Committee, to Senator Patrick Leahy (June 21, 2000), quoted in S. REP. NO. 108-123, at 78; Letter from Eliot Spitzer, Attorney General of New York, to Senator Bill Frist and Senator Tom Daschle (June 22, 2004), reprinted in 150 CONG. REC. S7703 (daily ed. July 7, 2004) (statement of Sen. Reid); Letter from Annice M. Wagner, President, Conference of Chief Justices, to Congress (Mar. 28, 2002), cited in S. REP. NO. 108-123, at 75 & n.2 (2003).
55. Letter from Leonidas Ralph Mecham, Secretary, Judicial Conference of the United States, to Orrin G. Hatch, Chairman, Senate Committee on the Judiciary (Mar. 26, 2003), reprinted in 150 CONG. REC. S7782, 7786-87 (daily ed. July 8, 2005) (statement of Sen. Hatch).
56. The American Bar Association, whose membership contains lawyers who represent defendants as well as plaintiffs in class actions, is on record as supporting only limited federal court removal provisions because it understands the tradeoffs that are involved in allowing any additional removals at all. Task Force on Class Action Litigation, Am. Bar Ass'n, Report to the House of Delegates - Recommendation 1 (Feb. 2003), http://www.abanet.org/classaction/final/recommendation.pdf.
57. Supporters of S. 2062 attempt to portray it as providing benefits for consumers as well as defendants. See Schwartz, supra note 28, at 483, 494 (2000). Nevertheless, it is noteworthy that not a single consumer group supported it, and many opposed it. See supra note 48 and accompanying text.
58. In 1993, 1994, and 1995, 51,445, 54,886, and 51,448 cases involving civil diversity of citizenship were filed in U.S. district courts respectively. See Admin. Office of the U.S. Courts, Judicial Facts and Figures tbl. 2.5 (Mar. 2003), http://www.uscourts.gov/ judicialfactsfigures/table2.05.pdf. In 1996, section 205 of the Federal Courts Improvements Act, Pub. L. 104-317, § 205, 110 Stat. 3847, 3850 (1996), amended 28 U.S.C. § 1332 by increasing the amount in controversy requirement for diversity jurisdiction cases from $50,000 to $75,000. Because the change became effective ninety days after enactment in October 1996, data on diversity case filings from 1996 has been excluded. In 1997, 1998, 1999, 2000, and 2001, 55,278, 51,991, 49,793, 48,626, and 48,998 diversity cases were filed respectively - an overall decline of 9% from 1997 to 2001. Nevertheless, filings have increased over the past two years, with 56,824 filings in 2002 and 61,156 filings in 2003 - a 24.8% increase since 2001. See Admin. Office of the U.S. Courts, supra, at tbl. 2.5.
59. Ortega v. Star-Kist Foods, Inc., 370 F.3d 124 (1st Cir. 2004), cert. granted on other grounds, 125 S. Ct. 314 (2004).
60. S. REP. NO. 108-123, at 47 (2003) ("[T]he Committee further understands that in assessing the various criteria established in all these new jurisdictional provisions, a federal court may have to engage in some fact-finding . . . [and] that in some instances limited discovery may be necessary to make these determinations."). Those statements were made before the most recent amendments allowing for, or requiring, remands where there was an in-state defendant and where one-third (permissive) or two-thirds (mandatory) of the class came from the state in which the action was filed. Those remand amendments will complicate the factfinding process considerably, and hence the Committee's optimism about the need for relatively little discovery no longer seems warranted.
61. The statute makes one change from existing law and clarifies one other issue with respect to the amount in controversy. Current law allows punitive damages to be taken into account, except where it is clear that no punitive damages would be allowed. Bell v. Preferred Life Assurance Soc'y, 320 U.S. 238, 240 (1943). The statute changes that by eliminating punitive damages from the calculations, because including punitive damages would make the aggregate amount almost meaningless, unless it were extremely high. Second, the statute makes explicit that attorneys' fees (like costs) are not included in the computation of the amount in controversy. The proper treatment of attorneys' fees under section 1332 has arisen in class actions principally in connection with whether the named plaintiff meets the $75,000 threshold in those jurisdictions which hold that only the class representative must meet that test. Typically, the defendant attempts to allocate the entire potential fee to the named plaintiff in order to obtain removal, because if the fee were spread out among the class, removal would not be possible in most consumer cases. See Grant v. Chevron Phillips Chem. Co. L.P., 309 F.3d 864 (5th Cir. 2002). The statute excludes all fees from the calculation. In light of those changes, a lower aggregate amount might be justified, an issue on which I take no position since that is not the key to the problem or my principal basis for disagreement with S. 2062.
62. Thus, if a class of Kansas residents sued in one case, and a class of Arizona residents sued the same Texas company in another state on the same claim, even if both alleged that a widely sold product was defective in some respect, there would be no possibility of removal under this statute because no individuals would be in more than one class.
63. It is possible that, under S. 2062, some class actions would not reach the threshold for removal and hence could not be removed, even if larger actions had already been removed. S. 2062 would also require remand of a limited category of class actions if the case were filed in the home state of the defendant and two-thirds of the class resided there, even if there were a dozen other similar cases that were in the federal court. Subsection (d)(4) of the attached statute would specifically recognize the possible underinclusion problem and allow removal of small actions that do not independently reach the threshold numbers at the discretion of the court that would decide these matters. The statute would never mandate remand of any class action, no matter how local it seemed, if there were multiple similar actions in federal court. Even under the attached proposal, it is conceivable, with very skilled pleading by counsel for plaintiffs, to craft multiple classes based on geographic units smaller than a state so that no case would ever be removable. If that should become a problem, Congress could revisit the threshold criteria.
64. The statute recognizes that in some cases state courts may be about to act in ways that will moot a federal removal decision or otherwise significantly affect a case in which removal is being sought. Therefore, the statute creates a further exception to the Anti-Injunction Act, 28 U.S.C. § 2283 (2000), which the Panel can use to preserve the status quo while the petition for removal is pending. S. 2062 avoids that problem by making removal automatic.
65. See, e.g., In re Asbestos Prod. Liab. Litig., 771 F. Supp. 415, 417 & n.4 (J.P.M.L. 1991).
66. 28 U.S.C. § 1446(b) (2000).
67. See Discretionary Removal Statute §§ (c)(3)(A), (B), (C), in Appendix infra.
68. Id. § (c)(3)(D).
69. Id. § (c)(3)(F).
70. Id. § (d)(1).
71. Id. § (d)(2).
72. Id § (d)(3). Curiously, S. 2062 says nothing about transfers once the cases are removed, and so presumably a separate proceeding before the Panel on Multidistrict Litigation would be required. However, under current law, the Panel can only transfer a case for pretrial purposes, see Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998), leaving open the issue of where these multiple class actions would be tried, if the cases got that far, as they occasionally do. See Allapattah Servs. v. Exxon Corp., 333 F.3d 1248 (11th Cir. 2003), cert. granted in part, 125 S. Ct. 317 (2004).
73. Discretionary Removal Statute § (d)(2).