Class Actions, U.S. Supreme Court

If It Walks Like a Class or Mass Action…Is It Removable Under CAFA? (Part 1)

            Last term, the U.S. Supreme Court broke ground on interpreting the Class Action Fairness Act of 2005 (“CAFA”) by setting limits on plaintiffs seeking to maneuver around federal jurisdiction.  Having resolved in Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345, 568 US __ (2013) the quandary presented by plaintiffs attempting to stipulate their way around CAFA’s $5 million threshold for class action removal, the Supreme Court and lower courts recently have been faced with a threshold question of a different nature regarding removability under CAFA: is the case at hand even a class or mass action?  This question has arisen in the context of actions brought by State attorneys general on behalf of their citizens, resulting in a Circuit Court split that will be addressed by the U.S. Supreme Court in Mississippi ex rel Hood v. AU Optronics Corp., S.Ct. Case No. 12-1036.  The question also recently was considered by the Seventh Circuit Court of Appeals in the context of a class representative filing a suit as an individual to enforce a class settlement against the defendant’s insurer in Addison Automatics, Inc. v. Hartford Casualty Ins. Co., No. 13-2729, (7th Cir. Oct. 2, 2013).  In AU Optronics, the Mississippi Attorney General (“Petitioner”) brought claims under state antitrust and consumer protection laws against the corporate defendants (“Respondents”) for alleged price-fixing of Liquid Crystal Display (“LCD”) panels, seeking injunctive relief and monetary restitution for the state and individual citizens who purchased products with the LCDs.  The Fifth Circuit is the only one of the four Circuit Courts (the Fourth, Fifth, Seventh, and Ninth Circuits) that have considered this question with respect to similar State attorney general actions to hold that an action brought by a State attorney general on behalf of its citizens is removable under CAFA as a mass action.  AU Optronics was the Fifth Circuit’s second decision refusing to remand a State attorney general action to state court under CAFA and is set for oral argument before the Supreme Court on November 6, 2013.  Although the Seventh Circuit held that an action brought by a State attorney general on behalf of its citizens is not removable under CAFA, the court ruled that the class representative’s purported individual action in Hartford Casualty was an “artificial attempt to disguise the true nature of the suit,” and was a removable class action.  In our two-part series, we will look at this latest CAFA threshold question presented by AU Optronics and Hartford Casualty, and explore the courts’ views on how and when to look behind the pleadings to discern the true nature of a suit.

Actions by State Attorneys General – AU Optronics at the U.S. Supreme Court

            AU Optronics is an interesting test case through which to examine the impact of CAFA on actions brought by State attorneys general.  In fact, this is the only case out of five cases against the same defendants that involve the same claims based on the same conduct that has remained in federal court – the other four cases have been remanded to state court in the Fourth, Seventh, and Ninth Circuits.  This case presents questions regarding CAFA’s encroachment upon state autonomy and pushing the boundaries of the basic principles of federalism, but the AU Optronics litigation also has farther reaching implications than just the interests of the state of Mississippi, or any one state.  The Supreme Court stated in Knowles that “CAFA’s primary objective” is “ensuring ‘Federal court consideration of interstate cases of national impor­tance.’”  AU Optronics is one of more than a dozen suits filed by State attorneys general following an antitrust price-fixing investigation conducted by the U.S. Department of Justice.

            The Respondents paint a vivid illustration of the magnitude of the case, stressing that “[t]he lawsuit brought here by the Mississippi Attorney General [is] against twenty-two corporate entities from nine multinational corporate families….None of the Respondents is a Mississippi resident, and all of them are part of corporate families headquartered in Asia….All of Respondents’ alleged conspiratorial activities are alleged to have occurred outside of Mississippi, mostly in Asia,” and that “Respondents sold billions of dollars’ worth of LCD panels in the international market from 1996 through 2006, which is the relevant period in the complaint.”  The AU Optronics matter is not merely a state matter, it “is interconnected with the other class actions litigated in the MDL Court and other proceedings across the country and in foreign jurisdictions, all of which will have implications for both interstate and international commerce and raise sensitive issues of comity with foreign jurisdictions.” (citations omitted).

            So, was CAFA meant to drive even cases brought by State attorneys general that may be of national importance to the federal forum?  There are many issues on which the Circuit Courts, as well as Petitioner and Respondents, disagree and we highlight several key points of contention below:

  • If a State attorney general is seeking monetary relief on behalf of particular citizens of the state, is the AG even acting in a parens patriae role?    

            The question presented by Petitioner State of Mississippi and certified for review is: “Whether a state’s parens patriae action is removable as a ‘mass action’ under the Class Action Fairness Act when the state is the sole plaintiff, the claims arise under state law, and the state attorney general possesses statutory and common-law authority to assert all claims in the complaint.”  Respondents take issue with the State’s characterization of the action as a parens patriae action, arguing that “Petitioner’s question presented presumes that this case is a ‘parens patriae action’ and that the State has ‘common-law authority to assert all claims in the complaint.’ But the Fifth Circuit expressly held to the contrary that Petitioner ‘is acting, not in its parens patriae capacity, but essentially as a class representative.’  In other words, Petitioner’s question presented incorrectly assumes that the key point of contention in the circuit conflict is not in dispute in this case. Petitioner’s question presented ignores the particular citizens on whose behalf Petitioner seeks monetary relief claims.”  The Respondents argued that the proper question is “whether an action filed by a state attorney general in state court is removable under CAFA where the State is the only named plaintiff but the action includes, among other things, monetary relief claims on behalf of particular citizens of the State.”                  

  • Does CAFA support the claim-by-claim approach used by the Fifth Circuit to determine the real party in interest or is the whole-case approach used by the other Circuits proper?

            In its first case considering removal of an action filed by a State Attorney General under CAFA, Louisiana ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418 (5th Cir. 2008), the Fifth Circuit adopted a claim-by-claim approach to analyze whether there are real parties in interest other than the state, rendering the case a mass action.  Under this approach, the court looks at each claim in the complaint individually to determine the real parties in interest.  The Fifth Circuit applied the Caldwell claim-by-claim approach in AU Optronics and found that with respect to the claim for restitution, “the real parties in interest include not only the State, but also individual consumers residing in Mississippi.”  Each of the other three Circuit Courts have rejected the Caldwell claim-by-claim approach and consider the complaint as a whole and the “essential nature” and effect of the action in determining the real party in interest.

            Respondents question the validity of the whole case approach, under which the other Circuit Courts held that restitution claims were merely “tacked on” to the other AG claims:

The application of the whole-case approach by the Fourth and Ninth Circuits highlights a glaring problem with that approach. Both of those courts concluded that the monetary claims on behalf of particular citizens were merely “tacked on” to the other claims in the complaint, including those seeking injunctive relief and civil penalties.  In fact, the potential liability posed by restitution claims can dwarf the civil penalties and injunctive relief sought in cases of this type. Dismissively characterizing the restitution claims as being “tacked on” ignores the realities of these cases.  And there is no principled basis on which courts can determine which claims are “important” and which are simply “tacked on.”

(citations omitted).  Respondents point out that in Au Oprtronics, the State’s restitution claim likely will amount to hundreds of millions of dollars, while the injunctive relief sought is based on alleged conduct that ended in 2006.

            The AU Optronics concurring opinion and Petitioner argue that there is no textual support in CAFA for the Fifth Circuit’s claim-by-claim approach.  Petitioner argues that “the only cases holding that a named state plaintiff is not the real party in interest for purposes of federal jurisdiction are those where none of the relief benefited the state and all of the relief benefited a limited number of other parties.”  Respondents point to several sections of the statute, including the definition of mass action, arguing that the Fifth Circuit’s claim-by-claim approach “is mandated” by CAFA’s text:  “CAFA…defines a mass action as a civil action ‘in which monetary relief claims of 100 or more persons are proposed to be tried jointly.’ 28 U.S.C. § 1332(d)(11)(B). The only proper way for courts to determine whether a case is a civil action ‘in which’ there are 100 or more persons with monetary relief ‘claims’ is to evaluate each claim in the complaint one by one.”  Respondents also point to the CAFA minimal diversity requirement, which they argue requires consideration of even unnamed parties in interest, and the language of the General Public Exception, which is discussed further below.  Petitioner counters that even if the claim-by-claim approach were properly used, the only two claims in the case are by the State and are brought under statutes that do not authorize a private citizen or consumer to bring damages claims against the defendants.

  • Does legislative history reflect that State attorney general actions are subject to CAFA?

            Both Petitioner and Respondents find support in the legislative history of CAFA for their respective positions.  Both highlight that while finalizing CAFA, forty-six State AGs wrote to Congress supporting an amendment that would have explicitly excluded actions filed by State attorneys general from CAFA and the proposed amendment was rejected.  However, Respondents cite the Congressional Record for the proposition that the proposed amendment was rejected because it “would have “create[d] a loophole that . . . plaintiffs’ lawyers will surely manipulate . . . to persuade a State attorney general to . . . lend the name of his or her office to a private class action.”  Petitioner, on the other hand, points to the Congressional Record to show that the sponsors of CAFA opposed the amendment because “they said it was ‘unnecessary,’ as it was ‘perfectly clear’ that the bill would not apply to parens patriae actions, which were ‘excluded from the reach of the bill.’”

  • The significance and applicability of the CAFA General Public Exception

            CAFA contains a provision that excludes from the definition of mass action, actions where “all of the claims in the action are asserted on behalf of the general public (and not on behalf of individual claimants or members of a purported class) pursuant to a State statute specifically authorizing such action.”   In AU Optronics, the District Court found that this general public exception excluded the Mississippi AG’s action from the reach of CAFA.  The Fifth Circuit reversed the District Court, acknowledging that its decision “may render such statutory exception a dead letter” and “welcom[ing] congressional clarification of this issue.”  Petitioner argues that the Fifth Circuit’s approach is invalid under traditional tenets of statutory construction if it renders the general public exception a nullity.  Respondents, however, argue that the clear language of the general public provision supports the Fifth Circuit’s claim-by-claim approach and its conclusion that the restitution claim brought on behalf of particular state citizens falls outside of the general public exception: ”In order to evaluate whether this provision applies, courts must review the claims one by one to determine whether they are ‘all’ asserted on behalf of the general public and whether all of the claims are pursuant to a ‘state statute.’”  Respondents assert that “[i]f Congress intended to exempt actions simply because the State is bringing some claims — or even most claims — on behalf of the general public, as the whole-case approach seems to require, it would have used the word ‘any’ instead of ‘all’ in the general public provision.”  Petitioner, however, argues further that even if the Fifth Circuit’s approach were valid, the sheer number of residents affected in this matter (hundreds of thousands to millions) qualify as the “general public.”

            The Supreme Court’s resolution of AU Optronics will resolve a Circuit split that has been described as “intolerable as a matter of federalism.”  We could only highlight many of the key arguments in the matter in the space we have in this post – you can access copies of the Supreme Court briefing in AU Optronics here.  We will keep you posted on developments in the case – Supreme Court oral argument is November 6th.  In the next post in our series, we will review the Seventh Circuit’s decision in Hartford Casualty, which thwarted the plaintiff’s attempt to evade federal jurisdiction under CAFA using a “coy pleading” to “disguise the true nature of its claim.”

Tony Lathrop

About Tony Lathrop

Tony Lathrop brings experience and a high level of analytical ability, professional credibility and creativity to handling litigation matters. He rigorously represents his clients' interests in a diverse range of claims and actions. A certified mediator, Mr. Lathrop has extensive experience representing business clients in mediation. His service to the legal profession in North Carolina has allowed him to develop relationships across the state that benefit the firm's clients.

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