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Article Excerpt
INTRODUCTION
I. FORUM SHOPPING IS PROPER, WITHIN LIMITS II. S. 2062--THE DEFENSE-SPONSORED REMOVAL PROPOSAL III. THE MAJOR PROBLEMS WITH S. 2062 IV. A BETTER ALTERNATIVE A. Tinkering with the Numbers Won't Work B. Discretion, with Modest Thresholds, Is a Far Better Way to Decide Which Class Actions Belong in Federal Court C. How the Alternative Approach Would Work CONCLUSION APPENDIX
INTRODUCTION
The subject of money damages class actions is inherently controversial because so much is at stake. Given the massive distribution system for products and services in the United States, and the size of the companies that dominate our economy, a class action filed against a major company is likely to involve many millions of dollars, if not more. On the plaintiffs' side, the stakes for consumers, not to mention the lawyers who represent them in class actions, are of equal magnitude, at least on a collective basis. Thus, it is not hard to see why people on both sides care so much about class actions and why the recent battle in Congress was so heated over S. 2062, which its sponsors have called the Class Action Fairness Act of 2004. (1) Its main thrust is procedural: it would permit defendants to remove from state to federal court most damages class actions, in particular those cases based on state law, which currently can only be litigated in state court. Although it did not pass in 2004, it is almost certain to reappear in substantially similar form in 2005.
In one respect, the ferocity of the debate is a little odd since everyone agrees that the bill would not change substantive law. (2) Furthermore, those on the defense side do not dispute that some class actions involve claims in which the facts and the law show that large numbers of consumers have been injured and have a right to recover damages, and that, without the class action device, the plaintiffs would have no remedy at all. Thus, the proponents of S. 2062 claim that all they are doing is moving these class actions to a more "appropriate" forum--the federal courts. Similarly, all but the most fervent class action proponents would concede that there have been abuses, in which weak claims have brought about sizeable settlements, or in which the class lawyers recovered large fees and most of the class received little or nothing of value. And, if pressed, the opponents of this legislation would agree that there are at least some situations in which there are multiple overlapping class actions filed in several state and perhaps some federal courts, for which it would be sensible to consolidate the actions in a single forum. But underlying the arguments about whether these cases "ought" to be in state or federal court is a deeply held belief by each side that the choice of forum will significantly affect the outcome of the case. (3)
The Class Action Fairness Bill would amend the jurisdictional provisions in Title 28 for class actions in a way that would significantly increase the ability of defendants to remove state law class actions filed in state court to federal court. Defendants believe that moving cases to federal court would make many classes more difficult to certify, and that it would be more difficult for plaintiffs to prevail even when classes were certified.
There is, of course, talk about fairer procedures in federal courts, about how appropriate it is for national class actions to be in federal court before a single judge, and about how it would be much more efficient to hear disparate class actions that are filed in different states, but that involve very similar claims, in one forum. But no one should be fooled by such talk. These proposals are unabashed efforts at forum shopping because defendants believe they will improve their chances of success markedly in class actions if they are in federal courts. This conclusion is made clear by the fact that the impact of the removal provisions on state court class actions would far exceed the rationales offered for the amendments. Even when the vast overinclusiveness of these removal provisions was pointed out, the bill's proponents did not back off or agree to narrowing amendments.
Despite the overreaching by the bill's proponents, they do have a point. There are some situations in which multiple class actions, involving very similar claims, are filed against the same defendant(s) in a number of different state courts and should be handled on a consolidated basis in a single forum. But because there is no mechanism for interstate transfers and because current federal jurisdictional rules preclude most if not all of these cases from being removed to federal court, such consolidation is not possible. There is also no mechanism by which most class actions brought on behalf of a nationwide class can end up in federal court, no matter how few class members reside in the forum state or how little the underlying transactions have to do with that state. The fault with S. 2062 and its predecessors and companion bills is that they would result in far more removals than can be justified by these consolidation and national class rationales. (4)
The direct cause of the mismatch between the justifications offered and the specifics of these removal bills is that the bills rely exclusively on the twin criteria of number of class members and the aggregate amount in controversy as the sole basis for federal court jurisdiction, without asking whether there is any real need to take the particular case out of the state court in which it was filed. As I argue below, the question of whether it is appropriate to relax current jurisdictional requirements cannot be properly answered by mechanical formulas, but is inherently discretionary, much like the decision as to whether similar pending cases in the federal system should be transferred to a single judge for pretrial matters under 28 U.S.C. [section] 1407. Therefore, I propose a statute that appears as an Appendix to this Article, under which class action removals would be based on a series of factors that are designed to test the necessity for removal and consolidation, and under which the decision would be made by a body such as the Panel on Multidistrict Litigation, rather than unilaterally by the defendant. The amount in controversy and number of class members would remain as threshold criteria, but the focus of the inquiry would be on whether, under all the circumstances in the pending similar cases, removal is justified.
Before explaining my proposal in detail, I will review the issue of forum shopping generally, not to attack the notion, but to put it into context and explain what I perceive to be the countervailing considerations that bear on whether to allow wholesale removal of state law class actions filed in state court. I will then analyze the Class Action Fairness Bill, with a particular focus on the disconnect between what the sponsors say the bill is designed to do and what it will actually change. Finally, I will discuss the features of my alternative proposal and the reasons that it is far better suited to solve the problems arising from multiple overlapping class actions and national class actions filed in state court.
I. FORUM SHOPPING IS PROPER, WITHIN LIMITS
The battle over the Class Action Fairness Bill is a battle about forum shopping and perhaps some other issues. All of these issues relate to the primary desire of defendants to be in federal court and the primary desire of plaintiffs to have their choice of forums, which in most cases involving state law means state court. Whenever I teach civil procedure and suggest forum shopping as a tool of a lawyer, the students recoil in horror. They seem to regard it as the procedural equivalent of suborning perjury, or at least the kind of tactic that no self-respecting and ethical lawyer would ever use.
That, of course, is utter nonsense; every lawyer thinks about the best forum before filing a case or before answering a complaint. If a lawyer did not at least explore the question of which forum is most advantageous for the client, his neglect might be considered malpractice and would certainly represent a failure to do something that the lawyer on the other side would have done, or will do at the first available opportunity. No statute, rule of procedure, or ethical prohibition bars forum shopping, and the existence of choices of venues under both state and federal laws, and the statutory right to remove certain cases to federal court, are policy statements approving at least some forum shopping.
In fact, Article III of the Constitution authorizes Congress to create forum shopping by allowing federal courts to hear diversity cases, even when state law governs. The original rationale for creating diversity jurisdiction (and the related provision for suits involving aliens) was a belief that federal courts would give a fairer trial to outsiders than would a state court, or at least a belief that many outsiders would believe that to be the case. (5) That every diversity case involves forum shopping is clear because there is always at least one state court that would also have jurisdiction to hear the case, and the plaintiff is given a choice, which cannot be overturned by the defendant or the federal court, to have the case heard in federal rather than state court. If the case is filed in state court, and if the requirements of complete diversity and amount in controversy are satisfied, the defendant can engage in forum shopping by removing the case to federal court, unless the case was filed in the state where the defendant resides. It is thus only a slight overstatement to say that forum shopping is a constitutional right in diversity cases. (6)
There are a number of limits on the ability of parties to invoke diversity jurisdiction that do not undermine the notion that forum shopping is a proper activity, but rather reflect the fact that there are other values in the litigation system that Congress has decided must also be taken into account. These limitations recognize that there are two judicial systems--federal and state--and that if there is too much forum shopping, the much smaller federal system is likely to be overwhelmed with too many cases. Congress could expand the federal courts to accommodate more cases, but it has decided not to do so, and hence one way to limit their dockets is to restrict federal court access to those cases in which the benefits of a federal forum are most likely to be greatest and the harm from restricting the case to a state court least severe.
The most significant limit is the amount in controversy rule, which currently requires that each plaintiff have a claim that exceeds $75,000 before the case can be filed in federal court. (7) Until 1958 the amount was $3000; it was subsequently increased to $10,000 (8) and $50,0009 before reaching its present level in 1996. (10) Whether, in an era of increasingly large verdicts, the current amount in controversy requirement keeps many tort cases out of federal court is a subject of debate, but it surely has that effect on contract-type claims involving consumers, where the overall purchase is usually well below $75,000 and where damages are generally less subject to the kind of inflation and conjecture that occurs in tort cases. But regardless of how many cases the $75,000 requirement affects, its purpose is clear: to restrict diversity jurisdiction to those cases where the impacts, if any, of local prejudice are likely to cause the greatest economic harm to the outsider.
One other aspect of the amount in controversy requirement is essential to an understanding of the class action removal battle. After the 1966 amendments to the Federal Rules of Civil Procedure made it much easier for plaintiffs to maintain class actions in federal court, a case arose that raised the issue of whether the then-$10,000 requirement meant that each member of the class had to have the requisite amount in controversy, or whether the claims of the class could be aggregated to reach the required total. In Snyder v. Harris (11) the Supreme Court, interpreting the statutory amount in controversy provision, held that Congress did not allow aggregation. Therefore, the efforts of the plaintiffs to gain access to a federal court to try their claims, at a time when plaintiffs believed that they stood a better chance of winning a class action suit in federal and not state court, were rebuffed. Several years later, in Zahn v. International Paper Co., (12) the Court held that, even where the named plaintiff had the requisite amount in controversy to bring a claim in federal court, the class members could not be part of the case unless each individual's claim also exceeded $10,000. (13)
By the mid-1990s, defendants in class actions began to favor federal courts, just as plaintiffs once did. (14) Conversely, many plaintiffs' lawyers began to prefer state courts. To achieve their goal, defendants began to argue that a 1990 amendment, which created a statutory basis for supplemental jurisdiction over claims that could otherwise not be brought in federal court, (15) had altered the rule in Zahn, without that change ever being mentioned in a hearing or elsewhere in the legislative history. (16) Thus, they argued, if the named plaintiff had a $75,000 claim, the remainder of the class could come in under supplemental jurisdiction, which meant that defendants could remove the entire case to federal court. That effort has met with mixed results, and in the one case in which the Supreme Court agreed to resolve the dispute, the Court divided 4-4. (17) The Court has recently agreed to attempt to resolve the issue once again, (18) but with an odd twist: the plaintiffs chose the federal court and won a verdict in favor of the class after trial, and the defendant is arguing that there was no federal court jurisdiction. In a further effort to increase the possibility of removal, defendants have also argued that where the relief for the class would cost the defendant more than $75,000 to implement (since the defendant would have to make the change for everyone in the class), the amount in controversy should be judged by the cost to the defendant and not the benefit to each individual class member. The Court agreed to hear that claim, but dismissed the cert petition as improvidently granted, perhaps because of procedural problems or because the case did not squarely present the issue of whether the $75,000 requirement could be satisfied by focusing on the potential cost to the defendant of losing the case. (19)
Aside from the goal of limiting the number of cases that the federal courts will hear, the restrictions on diversity jurisdiction also lessen one problem that arises in all diversity cases: the federal court must decide fewer questions of state law. Every diversity case, by definition, is based on state law, but routine tort or contract cases tend to be decided more on the facts than on novel issues of state law. While I know of no empirical studies to support this conclusion, it is my experience that class actions often raise claims that seek to push the boundaries of legal liability to new levels, and when the claim is based on state law, but is in federal court, federal judges, not state judges, will have the last word on the meaning of state law. (20) The desirability of having state court judges pass on state law disputes has never been seen by Congress (and was never seen by the Framers) to be of sufficient magnitude to trump all diversity jurisdiction, but it is surely an appropriate factor to be considered in deciding whether certain types of claims should be litigated primarily in federal court, as defendants would prefer, or in state court, which is generally the choice of plaintiffs' counsel.
If access to federal court in diversity cases was originally granted because of prejudice against nonresidents, there is surely much less prejudice today against citizens of other states than when diversity jurisdiction was included in Article III in 1789. America is a highly mobile country, such that juries, as well as litigants, may have come from elsewhere. Many people live in one state and work in another, and other forms of prejudice are at least as likely to influence decisionmakers as state of residence. Moreover, in class actions, the defendant is quite likely to be a major corporation, such as General...
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