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Supreme Court Hears Argument in Class Action Fairness Act Case, Mississippi ex rel. Hood v. AU Optronics Corp.

Posted in CAFA, U.S. Supreme Court

Today at the Supreme Court, all eyes, including mine, were on the oral arguments in the Town of Greece prayer case. But the second case—although it will certainly garner less attention—also is of great importance, especially to class-action practitioners. The issue in that case, Mississippi ex rel. Hood v. AU Optronics Corp., is whether so-called parens patriae lawsuits filed by state attorneys’ general to recover money on behalf of state citizens can be removed to federal court under the Class Action Fairness Act (CAFA).

Why does Hood matter? Significantly, the fight is not over whether these cases can be brought at all, but instead whether they proceed in federal court rather than state court. As business defendants know well, many state courts have a long and distressing history of tolerating abuses of the class-action device (or analogous procedures like mass actions and representative proceedings). Indeed, it was in response to that phenomenon that Congress enacted CAFA in 2005. And many parens patriae lawsuits bear some of the same hallmarks as class-action lawsuits. After all, state attorneys general routinely retain private class action lawyers to bring the litigation—Hood is a great example—and frequently the apparent goals of the case are (1) to recover money on behalf of individual consumers (whether paid to those consumers or into the state’s coffers) and (2) to secure attorneys’ fees for the private lawyers driving the litigation.

In short, when these state AG lawsuits are in effect prosecuted in state court by the private plaintiffs’ class action bar, the same kinds of abuses that led Congress to pass CAFA are implicated. Thus, as a policy matter, the real question should be: What do state attorneys general—or more to the point, their retained outside counsel—have to fear from a level playing field in federal court?

As I watched the oral arguments, it seemed clear that policy concerns about the misuse of parens patriae actions were on the minds of at least some of the Justices. That said, most of the questioning at oral argument focused on whether the state AG lawsuit at issue—in which the state seeks restitution of excess money paid due to allegedly fixed prices in violation of state antitrust law—qualified as a “mass action” under CAFA. On that legal question, which is one that has divided the circuits, my take is that the Justices’ questions at argument did not clearly signal which way the Court will go.

That said, I have a number of takeaways from the argument (transcript available here)).

First, many Justices were concerned with how any money recovered by the state AG would be allocated and distributed. Counsel for Jim Hood, the Mississippi attorney general, asserted that “the restitution claim seeks recovery to the State of the money, not to consumers in Mississippi,” and that it was likely that any such money would end up in the state treasury. But as Justice Breyer asked in one of his questions, the language of the relevant Mississippi statute refers to ordering defendants “to restitute any and all moneys for the purchases of its citizens”—and so even if the money was “given to the State, the restitution is for individual purchases of individual citizens,” meaning that “you better have a list of the individual people who bought something.” If so, Justice Breyer continued, that fact might support the companies’ argument that the state is really “pursuing” the claims of “individual people.” (Or, put another way, the individual consumers might be seen as the real parties in interest because the subject matter of the litigation comprises alleged antitrust violations as to those consumers’ particular purchases.) Thus, that approach sounds a lot like seeking to try many individual consumers’ antitrust claims jointly in the same action, which—roughly speaking—is a substantial part of test for whether a set of claims qualifies as a “mass action” that is removable under CAFA.

Second, there was a great deal of debate over whether a state AG’s lawsuit actually does propose to try claims jointly “on the ground that the plaintiffs’ claims involve common questions of law or fact,” as CAFA puts it. Justice Kagan pushed the companies’ counsel on this issue, contending that, as a procedural matter, the state did not have to demonstrate affirmatively that such “common questions of law and fact” truly existed. Justice Kagan seemed to be of the view that, if the state AG did not have to meet that hurdle, the text of CAFA’s mass-action provision would not be triggered.

Third, Chief Justice Roberts focused on the fact that parallel private class-action lawsuits had been filed involving similar allegations, and that settlements had been reached in those lawsuits that called for companies to pay money damages. (It is fairly common for parens patriae lawsuits to be filed by state AGs after or alongside private class actions.) This fact led the Chief Justice to point out “that there is nothing to prevent 50 attorneys general . . . from saying, every time there is a successful class action as to which somebody in my state purchased one of the items, we are going to file a parens patriae action” in which “the complaint is going to look an awful lot like the class action complaint.” If so, he noted, “it would make no sense for a defendant in a class action brought by consumers to ever settle the case,” because the business is “going to have to pay twice”— to settle the private class action and to resolve the state’s lawsuit. That problem would raise practical concerns about judicial administration that could be solved if state AG actions were removable to federal court, where presumably they would be joined or consolidated through the MDL process with private class actions filed in or removed to federal court.

Of course, the ultimate resolution of these troubling policy concerns depends upon how the Supreme Court interprets CAFA. A number of the Justices seemed sympathetic to the companies’ argument that “the driving force behind [CAFA] was to put interstate claims of national importance into Federal court.” And surely at least some Justices agree that these state AG lawsuits look like and quack like the types of class and mass actions that were susceptible to state court abuses. But that does not necessarily mean that the Court will find these state AG lawsuits subject to removal. As Justice Scalia archly observed: “Sometimes Congress doesn’t do it right. … Sometimes, they try to catch everything, but the language they use doesn’t do it.”

Did Congress get it right here? We’ll be waiting for the Supreme Court’s answer.