The impact of the class action fairness act on the federal courts: An empirical analysis of filings and removals

University of Pennsylvania Law Review

Volumn 156, Issue 6, 2008, Pages 1723-1764

  Lee III, Emery G ^a   Willging, Thomas E ^a  

^a Federal Judicial Center   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 54549096928     PISSN: 00419907     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (99)

1. Pub. L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28 U.S.C.).
2. The term "judicial hellhole" appears to have been created by the American Tort Reform Association and was used extensively during the CAFA debates. See Am. Tort Reform Ass'n, Judicial Hellholes 2007, http://www.atra.org/reports/hellholes (last visited Apr. 15, 2008).
3. REPORT OF THE PROCEEDINGS OF THE JUDICIAL CONFERENCE OF THE UNITED STATES 8-9 (Mar. 1977).
4. JCUS, LONG RANGE PLAN FOR THE FEDERAL COURTS 31 & n.13 (1995). The conference also suggested ways to limit the extent of diversity jurisdiction - e.g., by treating corporations "as 'citizens' of every state in which they are licensed or registered to do business." Id. at 31.
5. See FEDERAL COURTS STUDY COMMITTEE, REPORT OF THE FEDERAL COURTS STUDY COMMITTEE 39-45 (1990).
6. Id. at 38.
7. Id. at 40.
8. JCUS, supra note 4, at 30.
9. Id. at 31 n.16 (citing REPORT OF THE PROCEEDINGS OF THE JUDICIAL CONFERENCE OF THE UNITED STATES 21-22 (Mar. 1988)).
10. Id. at 31.
11. REPORT OF THE PROCEEDINGS OF THE JUDICIAL CONFERENCE OF THE UNITED STATES 13 (Mar. 2003) [hereinafter JCUS 2003 RESOLUTION]
12. (citing REPORT OF THE PROCEEDINGS OF THE JUDICIAL CONFERENCE OF THE UNITED STATES 45 (Sept. 1999)).
13. Id.
14. Memorandum from Hon. David F. Levi to Civil Rules Advisory Comm. 4-5 (Apr. 24, 2002) (on file with authors). Judge Levi became chair of the parent body, the Committee on Rules of Practice and Procedure, after the former chair, the Honorable Anthony J. Scirica, became Chief Judge of the United States Court of Appeals for the Third Circuit in 2003. In commissioning the Center's 1994-1995 study of class action litigation, the Advisory Committee asked the FJC to look for, inter alia, cases in which claims similar to those raised in class actions were raised in other cases in state or federal courts. The reporter to the Committee framed the request in terms of a "race to file" competing and overlapping class actions in different courts. Edward H. Cooper, Rule 23: Challenges to the Rulemaking Process, 71 N.Y.U. L. REV. 13, 45, 51 (1996).
15. FJC researchers responded with data documenting the numbers of consolidated and related cases in the four federal district courts studied. Thomas E. Willging, Laural L. Hooper & Robert J. Niemic, An Empirical Analysis of Rule 23 To Address the Rulemaking Challenges, 71 N.Y.U. L. REV. 74, 85-87 (1996). The Center found state court cases with similar claims in 1% to 3% of all class actions in four federal district courts during the study period. Id. at 87. Of those class actions, five appeared to involve overlapping classes. Id. at 166.
16. Memorandum from Hon. David F. Levi to Civil Rules Advisory Comm., supra note 13, at 4-5.
17. Id. at 15-16.
18. Id. at 16. The proposed amendments would have (1) allow[ed] a court that has denied certification of a class action to preclude later courts from adjudicating the certification issue [in the same matter]; (2) allow[ed] a court to prevent settlement shopping by precluding attempts to persuade another court to approve a class-action settlement that has been rejected; and (3) provide[d] a court with broad discretion to bar class members from pursuing overlapping class action litigation in other courts. Minutes of Meeting of Committee on Rules of Practice and Procedure 22-23 (June 10-11, 2002) [hereinafter June Minutes]. Those proposals had been included in Professor Ed Cooper's Reporter's Call for Informal Comment: Overlapping Class Actions of September 2001, available at http://www.uscourts.gov/rules/ comment2002/Reporter_Call_for_Comment.pdf, which was communicated to the bench, bar, and academic communities. The Advisory Committee convened a special meeting in October 2001 at the University of Chicago Law School to discuss and debate the proposals. See June Minutes, supra, at 23 (describing the debate).
19. June Minutes, supra note 16, at 24.
20. Telephone Interview with Hon. Anthony J. Scirica, Chief Judge, U.S. Court of Appeals for the Third Circuit and former Chair, Standing Comm. on Rules (Dec. 28, 2007).
21. JCUS 2003 RESOLUTION, supra note 11, at 14.
22. Id. The bills being referred to here were almost identical to each other and provided a jurisdictional threshold of $2 million, minimal diversity of citizenship (i.e., between a single class member and a single defendant), and the following exceptions: (1) where a substantial majority of a proposed plaintiff class and the primary defendants are all citizens of the state in which the action was originally filed and the law of that state will primarily govern the action; (2) where "the primary defendants are States, State officials, or other governmental entities against whom the district court may be foreclosed from ordering relief"; or (3) where "the number of proposed class members is less than 100." H.R. 2341, 107th Cong. (as passed by House, Mar. 14, 2002); S. 353, 106th Cong. (as reported by Senate, Feb. 3, 1999).
23. JCUS 2003 RESOLUTION, supra note 11, at 14.
24. Id. at 13.
25. S. 274, 108th Cong. (as passed by Senate, Feb. 4, 2003).
26. S. 274, 108th Cong. § 4(a)(2) (as reported by the Sen. Comm. on the Judiciary, June 2, 2003).
27. Id. § 4(a)(4)(A).
28. Id. § 4(a)(3) (listing five factors to consider in exercising that discretion).
29. Id. § 4(a)(4)(B), (C).
30. See Letter from Leonidas Ralph Mecham, Sec'y, JCUS, to Senator Patrick J. Leahy (Apr. 25, 2003) (referencing Senator Leahy's letters of April 9, 2003, and April 11, 2003) (copy on file with authors).
31. Id. at 3.
32. Id.
33. Pub. L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28 U.S.C).
34. S. REP. NO. 109-14, at 12 (2005), as reprinted in 2005 U.S.C.C.A.N. 3, 13 (alteration in original) (internal quotation marks omitted) (quoting Letter from Leonidas Ralph Mecham to Senator Patrick J. Leahy, supra note 28, at 3).
35. Letter from Leonidas Ralph Meacham to Senator Patrick J. Leahy, supra note 28, at 3.
36. CAFA § 2(a)(4)(A), (C), 28 U.S.C. § 1711 note (Supp. V 2005).
37. Id. § 2(b)(2).
38. 28 U.S.C. § 1332(d)(2)(A) (Supp. V 2005).
39. Thomas E. Willging & Shannon R. Wheatman, Attorney Choice of Forum in Class Action Litigation: What Difference Does It Make?, 81 NOTRE DAME L. REV. 591, 650 (2006) [hereinafter Willging & Wheatman, Attorney Choice];
40. see also THOMAS E. WILLGING & SHANNON R. WHEATMAN, FED. JUDICIAL CTR., AN EMPIRICAL EXAMINATION OF ATTORNEYS' CHOICE OF FORUM IN CLASS ACTION LITIGATION 51 (2005) [hereinafter WILLGING & WHEATMAN, AN EMPIRICAL EXAMINATION], available at http://www.fjc.gov/public/pdf.nsf/lookup/Clacto5.pdf (reporting the same data);
41. NICHOLAS M. PACE ET AL., RAND INST. FOR CIVIL JUSTICE, INSURANCE CLASS ACTIONS IN THE UNITED STATES 52 (2007) (finding that in 32 insurance class actions filed between 1992 and 2002 the "common fund was less than $5 million in size in 62.5 percent of the reported cases"). RAND researchers extrapolated that [i]f indeed 62.5 percent of interstate cases (i.e. those with a multistate class or a foreign defendant) had a value of less than $5 million as suggested by our limited data on settlement funds, then just 33 percent of state insurance class action filings would be removable under CAFA, compared with 89 percent if the threshold issue is ignored. Id. at 61.
42. 28 U.S.C. § 1332(d)(5)(B) (Supp. V 2005).
43. Willging & Wheatman, Attorney Choice, supra note 37, at 639; see also WILLGING & WHEATMAN, AN EMPIRICAL EXAMINATION, supra note 37, at 40 (reporting the same data).
44. Willging & Wheatman, Attorney Choice, supra note 37, at 639.
45. Id.
46. S. REP. NO. 109-14, at 36, as reprinted in 2005 U.S.C.C.A.N. 3, 35; see also Sarah S. Vance, A Primer on the Class Action Fairness Act of 2005, 80 TUL. L. REV. 1617, 1622 & n.34 (2006) ("There is likewise no exception to jurisdiction if one-third or fewer of the class members are citizens of the original forum ....").
47. S. REP. NO. 109-14, at 36, as reprinted in 2005 U.S.C.C.A.N. 3, 35.
48. 28 U.S.C. § 1332(d)(3) (Supp. V 2005).
49. Id. § 1332(d)(3)(A), (B), (D)-(F). The sixth factor - "whether the class action has been pleaded in a manner that seeks to avoid federal jurisdiction," id. § 1332(d)(3)(C) - implicitly involves federalism concerns that might be evident in carving up a natural class into "a class that appears to be gerrymandered solely to avoid federal jurisdiction by leaving out certain potential class members or claims." S. REP. NO. 109-14, at 37, as reprinted in 2005 U.S.C.C.A.N. 3, 36.
50. 28 U.S.C. § 1332(d)(4)(B).
51. Id. § 1332(d)(4)(A)(i)(II)(aa), (bb).
52. Id. § 1332(d)(4)(A)(i)(III).
53. Id. § 1332(d)(4)(A)(ii).
54. See, e.g., Lonny Sheinkopf Hoffman, Burdens of Jurisdictional Proof, 59 ALA. L. REV. (forthcoming 2008), available at http://ssrn.com/abstract=1005477 (concluding that lower court decisions construing CAFA to alter the burden for proving diversity misread the statute);
55. Allan Kanner, Interpreting the Class Action Fairness Act in a Truly Fair Manner, 80 TUL. L. REV. 1645, 1662-65 (2006) (arguing that CAFA did not change the tradition of placing the burden on the defendant to prove diversity); Vance, supra note 42, at 1637-41 (arguing that the text, rather than legislative history, should be the focus of interpretation, and that this supports the traditional allocation of the burden).
56. But see H. Hunter Twiford III, Anthony Rollo & John T. Rouse, CAFA's New "Minimal Diversity" Standard for Interstate Class Actions Creates a Presumption that Jurisdiction Exists, with the Burden of Proof Assigned to the Party Opposing Jurisdiction, 25 MISS. C. L. REV. 7, 10 (2005) ("[C]orrectly interpreted, CAFA's statutory text, purpose, and legislative history create a presumption in favor of finding that minimal-diversity jurisdiction exists . . . with the burden of proof on the party opposing jurisdiction.").
57. See, e.g., Vance, supra note 42, at 1640-41.
58. See, e.g., Frazier v. Pioneer Americas LLC, 455 F.3d 542, 546 (5th Cir. 2006); Evans v. Walter Indus., 449 F.3d 1159, 1164 (11th Cir. 2006).
59. 28 U.S.C. § 1453(b), (c) (Supp. V 2005).
60. CAFA § 2(a)(3)(A), 28 U.S.C. § 1711 note.
61. Id. § 2(a)(3)(C), 28 U.S.C. § 1711 note.
62. 28 U.S.C. § 1712.
63. Id. § 1713.
64. WILLGING & WHEATMAN, AN EMPIRICAL EXAMINATION, supra note 37, at 51. An additional 5% of cases included coupon recoveries as a portion of a larger recovery.
65. Kamilewicz v. Bank of Boston, 92 F.3d 506, 508-09 (7th Cir. 1996); see also S. REP. NO. 109-14, at 14-15 (2005), as reprinted in 2005 U.S.C.C.A.N. 3, 15 (citing Bank of Boston as a representative case for abusive attorneys' fee awards).
66. CAFA § 7, 28 U.S.C. § 2074 note. The rule amendments went into effect on December 1, 2003. See Federal Rulemaking, http://www.uscourts. gov/rules/archive.htm (last visited Apr. 15, 2008).
67. FED. R. CIV. P. 23(c)(2)(B).
68. To view illustrative notices of class action certification and settlement that the FJC prepared at the request of the Advisory Committee on Civil Rules, see Fed. Judicial Ctr., The Federal Judicial Center's "Illustrative" Forms of Class Action Notices, http://www.fjc.gov/public/home.nsf/autoframe? openform&url_l=/public/home.nsf/inavgeneral??openpage&url_r=/public/ home.nsf/pages/376 (last visited Apr. 15, 2008).
69. 28 U.S.C. § 1715.
70. Letter from Dan L. Crippen, Dir., Cong. Budget Office, to F. James Sensenbrenner, Jr., Chairman, Comm. on the Judiciary, U.S. House of Representatives (Mar. 11, 2002), in H.R. REP. NO. 107-370, at 27 (2002).
71. Id. at 27-28. That number of cases would impose additional costs on the courts of about $6 million, based on an estimated cost of $20,000 to manage each class action lawsuit (thus indicating that the "few hundred additional cases" meant 300 cases).
72. Id. at 28.
73. CONG. BUDGET OFFICE, COST ESTIMATE, S.5 CLASS ACTION FAIRNESS ACT OF 2005 (2005), reprinted in S. REP. NO. 109-14, at 76-78 (2005), as reprinted in 2005 U.S.C.C.A.N. 3, 71-73.
74. BOB NIEMIC & TOM WILLGING, FED. JUDICIAL CTR., EFFECTS OF AMCHEM/ORTIZ ON THE FILING OF FEDERAL CLASS ACTIONS: REPORT TO THE ADVISORY COMMITTEE ON CIVIL RULES 7-8 & chart 1 (2002), available at http://www.fjc.gov/library/fjc_catalog.nsf. These data include only unique class actions plus the lead cases in intradistrict or multidistrict consolidations. Id. at 5.
75. THOMAS E. WILLGING & EMERY G. LEE III, FED. JUDICIAL CTR., THE IMPACT OF THE CLASS ACTION FAIRNESS ACT OF 2005 ON THE FEDERAL COURTS: THIRD INTERIM REPORT TO THE JUDICIAL CONFERENCE ADVISORY COMMITTEE ON CIVIL RULES 3 (2007), available at http://www.uscourts.gov/rules/CAFA_Third_Interim.pdf.
76. DEBORAH R. HENSLER ET AL., RAND INST. FOR CIVIL JUSTICE, CLASS ACTION DILEMMAS: PURSUING PUBLIC GOALS FOR PRIVATE GAIN 56 (2000), available at http://www.rand.org/pubs/monograph_reports/MR969/. In insurance class action litigation, which is generally based on state laws and regulations, 89% of the cases identified by RAND researchers had been filed in state court. PACE ET. AL, supra note 37, at 21.
77. Class Action Litigation: Hearing Before the S. Comm. on the Judiciary, 107th Cong. 12 (2002) (statement of Thomas J. Henderson, Chief Counsel, Lawyers' Committee for Civil Rights Under Law).
78. Id.
79. Id. at 13.
80. Edward F. Sherman, Class Actions After the Class Action Fairness Act of 2005, 80 TUL. L. REV. 1593, 1606 (2006).
81. Memorandum from Tom Willging to the Advisory Comm. on Civil Rules (Oct. 25, 2005) (on file with authors) (outlining the "proposal to study the impact of class action fairness").
82. For a much more complete discussion of Phases II and III of the FJC study, see FED. JUDICIAL CTR., PROGRESS REPORT TO THE ADVISORY COMMITTEE ON CIVIL RULES ON THE IMPACT OF CAFA ON THE FEDERAL COURTS 2-3 (2007), available at http://www.fjc.gov/public/pdf. nsf/lookup/cafa1107.pdf/$file/cafa1107.pdf.
83. The text-based search is designed to disregard certain common terms including the word "class," such as "first class mail" and "class A misdemeanor." The docket records in cases with these terms (and variations on them) were not inspected unless the text-based search detected other uses of "class."
84. 29 U.S.C. § 216(b) (2000).
85. For a thorough discussion of the CourtLink database and its use in a prior FJC study of class action filings, see NIEMIC & WILLGING, supra note 68, at 26-28.
86. 42 U.S.C. § 2000e-5(f)(1), (2) (Supp. V 2005).
87. See Gen. Tel. Co. of the Nw. v. EEOC, 446 U.S. 318, 323 (1980) ("Rule 23 is not applicable to an enforcement action brought by the EEOC in its own name . . . .").
88. For cases identified as "related," two researchers examined the record in the case and determined whether the related cases were managed in a way that was the equivalent of consolidated treatment.
89. A possible criticism of our study of CAFA's impact on the workload of the federal courts is that, by eliminating overlapping and duplicative class actions from the study, we are actually understating the volume of class action activity in the federal courts. The primary interest of the committees of the Judicial Conference, as discussed in Part I, supra, is with the workload of the federal courts. For that reason, we take steps to avoid inflating the number of class actions identified by counting consolidated actions as multiple cases. That means in the end, however, that many filings and removals get excluded from the analysis database. We are certain diat academic researchers, with a different set of concerns from those of the judicial branch, would pursue aspects of this research in other ways. But to assuage concerns that our reported results are somehow affected by our consolidation-data- cleaning step, we should note that the exact same procedures were followed for both pre- and post-CAFA cases, so any understatement of total class action activity in the federal courts should be constant across the study period. Moreover, consolidated lead and MDL lead cases made up virtually the same proportion of the post-CAFA analysis cohort as observed in the pre-CAFA cohort. In other words, there is no reason to believe that the consolidation-data- cleaning step is driving our post-CAFA findings; those findings did not result from a smaller proportion of consolidated or MDL-transferred cases in the post-CAFA period. Indeed, the relative proportion of the consolidated lead and MDL lead cases in the pre- and post-CAFA cohorts in the entire database, prior to the consolidation-data-cleaning step, are also roughly the same.
90. Preliminary data provided by the Office of Court Research (OCR) of the Administrative Office of Courts in California indicate a decrease in class activity in seven California superior courts during the first year in which CAFA was in effect. FJC researchers found that during the same year (2005), class action activity increased markedly in the four California-based federal district courts. FED. JUDICIAL CTR., supra note 76, at 4-5. These preliminary data suggest the type of analysis that will be possible when further data become available.
91. All figures included in this Article omit the relatively small number of class actions in which federal jurisdiction was based on the fact that the United States was the defendant (U.S. Defendant jurisdiction).
92. Here r is Pearson's correlation coefficient, which ranges from -1, for a perfect inverse relationship between the variables, to +1, for a perfect relationship between them, with 0 (zero) meaning no relationship (correlation); p is the probability of finding the correlation by chance in a population without an underlying correlation, included for tests of statistical significance. This information is included only to identify the trends in the data.
93. 29 U.S.C. § 213 (2000).
94. CAL. BUS. & PROF. CODE § 17200 (West 2008).
95. Vance, supra note 42, at 1642.
96. See Willging & Wheatman, Attorney Choice, supra note 37, at 607-15.
97. See id. at 615-18.
98. John C. Coffee Jr. & Stefan Paulovic, Class Certification: Developments over the Last Five Years 2002-2007, 8 Class Action Litig. Rep. (BNA) S-787, S-819 (Oct. 26, 2007).
99. For a preliminary report on those data, see THOMAS E. WILLGING & EMERY G. LEE III, FED. JUDICIAL CTR., THE IMPACT OF THE CLASS ACTION FAIRNESS ACT OF 2005 ON THE FEDERAL COURTS: FOURTH INTERIM REPORT TO THE JUDICIAL CONFERENCE ADVISORY COMMITTEE ON CIVIL RULES (2008), available at http://www.fjc.gov/public/pdf.nsf/lookup/cafa0408.pdf/$file/cafa0408.pdf.