Standard Fire Ins. Co. v. Knowles

Over the past few years, a number of plaintiffs’ lawyers have attempted—with some success—to circumvent the “mass action” provisions in the Class Action Fairness Act of 2005 (“CAFA”), which allow defendants to remove to federal court certain cases raising “claims of 100 or more persons that are proposed to be tried jointly.” 28 U.S.C. § 1332(d)(11)(B)(i).  Although these lawyers represent 100-plus clients with substantively identical claims, they subdivide their mass actions into multiple parallel cases, often with just under 100 plaintiffs each.  And to avoid the “proposed to be tried jointly” language of CAFA, they remain coy about—or sometimes deny—any intention to try the cases jointly.  Instead, they toe up to the joint trial line by seeking to have the cases treated together for as many purposes as possible short of directly calling for a joint trial.  But an en banc decision by the Ninth Circuit earlier this week represents a welcome step towards limiting such efforts to evade federal jurisdiction.

That en banc decision springs from a pair of cases we discussed last December: Romo v. Teva Phamaceuticals USA, Inc., and its companion case, Corber v. Xanodyne Pharmaceuticals, Inc.—in which a divided panel approved the remand of 40 just-under-100-plaintiff cases as to which plaintiffs had invoked a California state-law procedure that allows for coordination of complex civil actions “for all purposes.”  Although the plaintiffs did not limit their coordination request to pretrial proceedings, the panel majority held that that the plaintiffs’ request was insufficient to trigger removal, effectively requiring that plaintiffs expressly request a single joint trial before defendants may remove a mass action under CAFA.  Judge Gould dissented; in his view, the practical result of plaintiffs’ proposal for coordination was dispositive—rather than whether plaintiffs had used the magic words of asking for a joint trial.

As we noted in a blog post last February, the Ninth Circuit had granted rehearing en banc in both Romo and Corber to resolve the circuit split that the panel had created with the Seventh Circuit’s decision in In re Abbott Laboratories, Inc. and the Eighth Circuit’s decision in Atwell v. Boston Scientific Corp.

This week, the en banc Court (pdf)—adopting a pragmatic approach to what counts as a “joint trial” for purposes of CAFA—held that the defendants had properly removed the cases.  Writing for the Court this time, Judge Gould agreed with the Seventh and Eighth Circuits that a proposal for a joint trial may be made implicitly as well as explicitly.  The Court explained that although a rule requiring the plaintiffs to invoke the magic words “joint trial” “would be easy to administer,” the problem with that rule is that it “would ignore the real substance” of plaintiffs’ proposals and how the mass actions were likely to be litigated in practice.  And the Court observed that, as a practical matter, plaintiffs’ request to coordinate all of the cases “for all purposes”—and their arguments before the state court that coordination was needed to avoid “the danger of inconsistent judgments and conflicting determinations of liability”—was a request for a joint trial.

That holding is good news for defendants facing mass actions in the Ninth Circuit.  That said, we would have liked to see the Ninth Circuit go further to curb the attempts by plaintiffs’ lawyers to circumvent CAFA.  Amici argued in Romo/Corber—as we have also contended—that the Supreme Court’s admonition in Standard Fire Insurance Co. v. Knowles not to “exalt form over substance” in assessing CAFA jurisdiction forecloses plaintiffs’ lawyers from gerrymandering their 100-plus clients into parallel smaller actions.

Equally troubling, the Ninth Circuit left open the possibility that plaintiffs may be able to evade CAFA by asserting that their request for coordination is “intended to be solely for pre-trial purposes.”  In our view, that distinction is likely to prove illusory in practice:  Even if plaintiffs never formally move to coordinate or consolidate parallel cases all the way through trial, the cases would still effectively be tried jointly because the judgment in the first action might well have preclusive effect on the trials in any subsequent actions, which surely would be presided over by the same judge and involve similar witnesses and evidence.  As the Seventh and Eighth Circuits have made clear in Abbott Labs and Atwell, even a single-plaintiff trial may qualify as a joint trial if the intent is to use it as a bellwether trial on liability or for preclusive effect in subsequent trials.

The fight over this issue is far from over:  Plaintiffs’ lawyers will continue to subdivide their mass actions artificially to avoid federal jurisdiction, and defendants will seek to convince federal courts that such slicing-and-dicing is improper under CAFA.  Nonetheless, the Ninth Circuit’s willingness to take—as the court of appeals itself said—a more “realistic” view of mass actions is a step in the right direction.

This morning I attended oral arguments at the Supreme Court in Dart Cherokee Basin Operating Co. v. Owens.  The issue presented in Dart Cherokee is whether a defendant who wishes to remove a case to federal court under the Class Action Fairness Act (CAFA) is required to submit evidence supporting federal jurisdiction along with the notice of removal.    Here’s my key takeaway from the argument:  The answer will be “no”—defendants need not attach evidence to a notice of removal—but only if the Court concludes that it has the power to reach the merits.

In most circuits, when a defendant seeks to remove a class action to federal court under CAFA, all the defendant has to do is file a notice of removal alleging that CAFA’s jurisdictional requirements have been satisfied—most significantly, that the amount in controversy exceeds $5 million.  More often than not, plaintiffs—who, as Justice Ginsburg put it memorably at the argument today, are “looking for big bucks”—do not contest that showing.  Of course, sometimes plaintiffs resist removal by moving for a remand to state court. In such situations, the defendant (who bears the burden of proving that federal jurisdiction exists) can come forward with evidence in opposing removal, and plaintiffs can contest that showing (including by responding with their own evidence.

But the prevailing rule in the Tenth Circuit is different.  There, district courts—applying Tenth Circuit precedent—routinely hold that a defendant must attach evidence supporting removal to the notice of removal itself.  That can be challenging for defendants, who typically are required to file a removal notice within 30 days of being served with a complaint—and the 30-day deadline is (usually, although not always) mandatory and jurisdictional.

In Dart Cherokee, the defendant did not do so; instead, it removed the case and alleged in its notice of removal that the amount in controversy exceeded $8.2 million (that is, greater than CAFA’s $5 million threshold).  After the plaintiff moved to remand, the defendant submitted uncontested evidence in opposition to the remand motion to shore up the allegation that the amount in controversy had been met.  The district court remanded the case to state court, concluding that the evidence defendant had submitted was too late to be considered.  The defendant sought leave to appeal under 28 U.S.C. § 1453(c), which provides that, for removals under CAFA, “a court of appeals may accept an appeal from an order of a district court granting or denying a motion to remand a class action to the State court from which it was removed.”  A divided panel of the Tenth Circuit denied leave to appeal, and rehearing en banc was denied by a divided 4-4 vote, over a vigorous dissent by Judge Hartz.

The Supreme Court granted certiorari, presumably to resolve the (lopsided) split among the circuits.  Today’s oral argument—transcript available here (pdf)—revealed two things.  First, if the Supreme Court reaches the merits of the issue presented, Dart Cherokee will almost certainly win.  Not one Justice asked questions reflecting any sympathy for the Tenth Circuit’s rule.   To the contrary, the Justices who spoke about the issue seemed to find it an easy one.  The statute governing notices of removal, 28 U.S.C. § 1446, provides that “[a] defendant . . . desiring to remove any civil action from a State court shall file in the district court of the United States . . . a notice of removal . . . containing a short and plain statement of the grounds for removal…” As Justice Ginsburg pointed out at oral argument, that language tracks Federal Rule of Civil Procedure 8(a), which governs pleadings; under Rule 8, it is clear that a complaint must have sufficient factual allegations but need not be—and rarely is—accompanied by evidence.

That said, it is possible that the Supreme Court may not answer the question at all.  Why not?  The potential wrinkle—one that received the most air time during today’s argument—has to do with whether the underlying merits have properly been  presented to the Supreme Court at all.  And the credit (or blame) for this wrinkle belongs to Public Citizen, whose amicus brief (pdf)  in support of the respondent first raised this question.

In that amicus brief, Public Citizen first argues that the Supreme Court lacks any jurisdiction to consider the case at all.   Under 28 U.S.C. § 1254, the Supreme Court has jurisdiction to review only “[c]ases in the court of appeals”; Public Citizen contends that because the Tenth Circuit denied leave to appeal, the case was never “in” the court of appeals.  At the argument, the Justices showed little sympathy for this position, but many Justices seemed intrigued by Public Citizen’s backup position, which is that all that was “in” the Tenth Circuit was whether leave to appeal should be granted, and that issue is one that is reviewed for an abuse of discretion.  In assessing that more limited question—whether the Tenth Circuit abused its discretion in denying review—the Justices seemed conflicted.  On the one hand, if the Tenth Circuit had agreed with the district court on the merits, then (assuming that Dart Cherokee is right about the merits) the Tenth Circuit’s refusal to review the district court’s order rested on an error of law—which always amounts to abuse of discretion.  On the other hand, if the denial rested on other factors (for example, docket congestion, factual issues, lack of interest, etc.) then it seems less likely that an abuse of discretion could be found.

So will the Court reach the underlying merits in Dart Cherokee?  My own take is that it’s a toss-up.  For most practitioners, it would be a bizarre result indeed if the oral argument revealed that there is an easy answer to the question presented but, for far more complicated reasons, the Court cannot deliver that answer.  As Justice Kagan put it to Dart Cherokee’s counsel after grilling him on jurisdictional issues:  “I sympathize with you. Because the next half hour”—in which counsel for respondents would argue—“is going to reveal that, actually, most of us agree with you on the merits,” or, at minimum, that “I agree with you on the merits.”

Furthermore, the Supreme Court’s past practice suggests that whether or not the court of appeals grants leave to appeal should not be an obstacle to the Supreme Court’s plenary review of the merits.  After all, just last term, a unanimous Supreme Court held in Standard Fire Insurance Co. v. Knowles that an order remanding the case to state court violated CAFA in a case where the Eighth Circuit—just like the Tenth Circuit here—denied the defendant leave to appeal the district court’s remand order.  Moreover, if Public Citizen is right that a court of appeals can insulate questions arising under CAFA from Supreme Court review by denying leave to appeal, that will create perverse incentives for the lower courts and may hamper the development of uniform rules governing CAFA removals—a result that seems at odds with CAFA’s purpose of ensuring that cases of national importance are easily removed to federal court.  Indeed, it is telling that Public Citizen’s brief focuses entirely on the jurisdictional issue, avoiding any effort to defend the judgment on the merits.

Will the Court answer the issue presented?  We’ll have to wait and see.

We’ve blogged before about plaintiffs’ attempts to circumvent the “mass action” provisions in the Class Action Fairness Act of 2005 (“CAFA”), which  allow defendants to remove to federal court certain cases raising “claims of 100 or more persons that are proposed to be tried jointly.” 28 U.S.C. § 1332(d)(11)(B)(i). To evade removal, creative plaintiffs’ lawyers have subdivided their mass actions into parallel cases of fewer than 100 persons each. Some courts have gone along with the charade. See, e.g., Scimone v. Carnival Corp., No. 13-12291 (11th Cir. July 1, 2013); Abrahamsen v. ConocoPhillips, Co., 503 F. App’x 157, 160 (3d Cir. 2012); Anderson v. Bayer Corp., 610 F.3d 390, 392 (7th Cir. 2010); Tanoh v. Dow Chem. Co., 561 F.3d 945, 950-51 (9th Cir. 2009).

The fight over removal in these gerrymandered mass actions often boils down to one key question:  whether the parallel cases are “proposed to be tried jointly.”  If so, CAFA permits removal.

Recognizing this point, the plaintiffs in these cases frequently remain coy about—or outright deny—an intent to try the parallel mass actions jointly.  But they often go right up to the edge, urging the same state trial court to resolve threshold issues in the cases together—or even simply to consolidate the state-court actions outright. Then, these plaintiffs say, CAFA’s mass-action removal provision doesn’t apply because they say that they have had the claims “consolidated or coordinated solely for pretrial proceedings.” 28 U.S.C. § 1332(d)(11)(B)(ii)(IV) (emphasis added).

But not all courts are falling for this effort to elevate form over substance.

Continue Reading Will the En Banc Ninth Circuit Clarify When a Subdivided Mass Action Can Be Removed Under CAFA?

The Class Action Fairness Act of 2005 (“CAFA”) provides that defendants may remove certain mass actions—cases that are proposed to be tried jointly—so long as the aggregate amount at stake is at least $5 million and there are 100 or more plaintiffs in the case. 28 U.S.C. § 1332(d)(11). But what if plaintiffs’ counsel try to avoid removal by splitting up a 100-plaintiff mass action into two smaller mass actions?

That was the situation facing Carnival. After a cruise ship ran aground off the coast of Italy, plaintiffs’ lawyers filed a mass action in state court on behalf of 39 plaintiffs. When an additional 65 plaintiffs indicated an intent to join that action—which would nudge it across the 100-plaintiff threshold for removal under CAFA—the plaintiffs voluntarily dismissed that action. The plaintiffs then re-filed two new mass actions in state court: one on behalf of 56 plaintiffs, and one on behalf of 48 plaintiffs. The two suits appeared to turn on common questions of law or fact, and otherwise seemed to satisfy CAFA’s mass-action removal provisions if taken together. So Carnival removed them to federal court.

The federal district court, however, granted the plaintiffs’ motion to remand. And the Eleventh Circuit recently affirmed. Scimone v. Carnival Corp. (pdf), No. 13-12291.

The Eleventh Circuit concluded that “the plain language of CAFA” deprived the district court of “subject-matter jurisdiction over the plaintiffs’ two separate actions unless they proposed to try 100 or more persons’ claims jointly.” But the plaintiffs asserted that they intended to try the two batches of related claims in two separate trials. CAFA itself bars the defendant from creating jurisdiction by proposing a single joint trial. And the state trial judge hadn’t consolidated the two actions. That was enough to require a remand, the Eleventh Circuit reasoned, even though the plaintiffs were clearly engaged in jurisdictional maneuvering in splitting up the plaintiffs between two mass actions. For example, some plaintiffs who were traveling on the cruise on the same ticket were split up between the two actions. The idea that the plaintiffs would really try their claims separately is hard to swallow.

The Eleventh Circuit isn’t alone in taking a literalist approach. Three other circuits have also allowed plaintiffs’ lawyers to avoid the removal of 100-plaintiff mass actions by splitting up their clients among multiple smaller actions. See Abrahamsen v. ConocoPhillips, Co., 503 F. App’x 157, 160 (3d Cir. 2012); Anderson v. Bayer Corp., 610 F.3d 390, 392 (7th Cir. 2010); Tanoh v. Dow Chem. Co., 561 F.3d 945, 950-51 (9th Cir. 2009).

But are these decisions consistent with the principle that plaintiffs’ artful pleading can’t eliminate federal jurisdiction and CAFA’s purpose of ensuring a federal forum for significant class and mass actions? After all, even if plaintiffs stick to their story and never move to consolidate the cases as a formal matter, they nonetheless would effectively be tried jointly because the judgment in the first action might well have preclusive effect on the trial in the second action, which surely would be presided over by the same judge and involve similar witnesses and evidence.

We’re reminded of Chief Justice Roberts’s hypothetical during oral argument in Standard Fire Insurance Co. v. Knowles, which involved a related problem under CAFA’s class-action removal provisions—whether a defendant can remove a class action when the plaintiff stipulates that the case is worth less than CAFA’s $5 million amount-in-controversy threshold. Chief Justice Roberts asked plaintiffs’ counsel: “What if you had a case where a lawyer brings an action in Miller County and says: I want to represent the class of people with these claims and these claims, whose names begin with A to K. It turns out that’s $4 million. And in the next county, at the same time, he files a case saying, I’d like to represent these people whose names begin L to Z. In each of those cases, it’s $4 million. I take it you don’t have any objection to that?” Knowles’ counsel responded that “for federal jurisdiction purposes . . . that kind of legal strategy is perfectly appropriate. . . .” This answer caused Justice Breyer to remark that an artificial limit on the amount of damages claimed “is just a loophole because it swallows up all of Congress’s statute . . . we have 30 or 40 or $50 million cases being tried in whatever counties Congress liked the least . . . .” Justice Breyer wondered whether to avoid such a “mechanical method of avoiding the purpose of the statute,” the Court should adopt a reading of CAFA that “you should aggregate the real value” of the claims “that the class is likely to have.”

And that is ultimately what the Court did in Knowles, in an opinion by Justice Breyer that explained that subdividing “a $100 million action into 21 just-below-$5-million state-court actions” would “squarely conflict” with CAFA’s objectives. Shouldn’t the courts take a similarly pragmatic approach to the mass-action removal provisions of CAFA? Otherwise, as Justice Breyer observed during argument in Knowles, “all that is required” to avoid the federal forum that Congress intended to provide “is a few extra pieces of paper that will soon become standardized, and a lot of postage stamps.”

Earlier today, the Supreme Court issued a unanimous decision in Standard Fire Insurance Co. v. Knowles, No. 11-1450, that should make it a lot harder for plaintiffs and their counsel to avoid federal-court jurisdiction over significant class actions.

The Class Action Fairness Act of 2005 authorizes the removal of class actions to federal court when, among other things, the amount “in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs.” 28 U.S.C. § 1332(d)(2). Some class-action plaintiffs have sought to defeat federal-court jurisdiction under CAFA—and thereby force a remand to state court—by stipulating that the maximum recovery that they will seek on behalf of the proposed class is less than CAFA’s $5 million jurisdictional threshold. The plaintiff in Knowles, for example, attached to his state-court complaint a stipulation stating that he would not “at any time during this case, whether it be removed, remanded, or otherwise . . . seek damages for the class . . . in excess of $5,000,000.”

Today, the Supreme Court held that such stipulations do not destroy federal jurisdiction under CAFA when the defendant has presented evidence that, but for the stipulation, the amount in controversy would exceed $5 million. The Court’s reasoning was, in its words, “simple”: To be effective, “[s]tipulations must be binding,” but “a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified.” Therefore, a nonbinding stipulation must be ignored when assessing the amount in controversy under CAFA.

Because a precertification stipulation binds only the named plaintiff, the Court explained, it cannot “reduce[] the value of the putative class members’ claims.” In part, that is because a “nonbinding, amount-limiting, stipulation may not survive the class certification process.” If, for example, a case were remanded to state court, the stipulation might then be voided in the class-certification process in order to protect the interests of the unnamed class members. The stipulation’s effectiveness would at best be “contingent” and hypothetical.

In short, the Court refused to treat “a nonbinding stipulation as if it were binding,” because that result would “exalt form over substance, and run directly counter” to CAFA’s “primary objective” of ensuring that the federal courts have jurisdiction over important (i.e., relatively large) interstate class actions. The Court therefore directed federal courts to “ignore[]” stipulations purporting to limit damages to a proposed class when determining the aggregate amount in controversy of a removed class action.

The Knowles decision is of enormous significance to businesses that may be targeted by class actions. Significantly, the Court pointed out that artful pleading, such as subdividing “a $100 million action into 21 just-below-$5-million state-court actions,” would “squarely conflict” with CAFA’s objectives, and therefore is forbidden. Knowles strongly suggests that the Court will look askance at future efforts by plaintiffs to gerrymander complaints in an effort to avoid federal-court jurisdiction and subvert CAFA’s purposes.

The Fair Debt Collection Practices Act (FDCPA), which regulates the conduct of debt collectors, authorizes plaintiffs suing over violations to recover statutory damages of up to $1,000. Because these amounts can rapidly add up to exorbitant numbers in a class action for very minor, technical violations, Congress capped the total amount of statutory damages that may be sought for the absent class members in a class action at the lesser of $500,000 or 1 percent of the debt collector’s net worth. 15 U.S.C. § 1692k(a)(2)(B).

Now imagine that you’re a plaintiff’s lawyer who has stumbled across what appears to be a very widespread FDCPA violation committed by a national debt collector—say, an error in the standard dunning letter sent to debtors across the country. Why would you ever file a single nationwide class action in which the class recovery tops out at a half- million dollars (or less, depending upon the defendant’s assets)—which means that your fees in a settlement effectively would be capped at a third or a fourth of that amount—when you can file dozens, fifty, or a hundred smaller class actions in which you could recover the same amount in each case?

Of course, any such maneuver would  be a transparent evasion of FDCPA’s cap on aggregate statutory damages. And it would frustrate Congress’s goal of protecting debt collectors from being bankrupted by FDCPA class actions. Nonetheless, in LaRocque v. TRS Recovery Services Inc., No. 2:11-cv-91-DGH (D. Me. Jan. 2, 2013), a district court held that the nothing in the FDCPA prevents plaintiffs from atomizing their class actions in order to recover the statutory cap in a series of individual suits.

In LaRocque, the plaintiff—or perhaps her granddaughter, who was a paralegal at a FDCPA class action firm—noticed that a debt-collection letter she had received regarding a bounced check arguably violated the FDCPA. The plaintiff then filed a class action on behalf of a putative class of recipients of similar letters in Maine, and—after that class was certified—filed state-specific class actions in four other federal courts. In the case in Maine, the defendants moved to expand the Maine-only class into a nationwide class, arguing that allowing the plaintiffs to pursue a series of single-state classes would circumvent the FDCPA’s cap on statutory damages.

The court denied the request, noting that FDCPA’s cap on statutory damages is phrased differently than the later-enacted cap in the Truth in Lending Act, which specifies that the cap applies “in any class action or series of class actions.” 15 U.S.C. § 1640(a)(2)(B) (emphasis added). Previously, the Seventh Circuit also had concluded that FDCPA’s damages cap doesn’t require plaintiffs to seek certification of a nationwide rather than a single-state class. Mace v. Van Ru Credit Corp., 109 F.3d 338 (7th Cir. 1997). But in that case, the Seventh Circuit observed that its holding might have to be revisited if a plaintiff ever actually brought “multiple or serial class actions to recover for the same misconduct.” Id. at 344. The district court in LaRocque, however, declined to analyze the issue substantively because other district courts presented with it hadn’t done so either.

So what should a defendant do if targeted by a wave of small class actions designed to avoid FDCPA’s cap on total damages in a class action? One approach would be to raise the issue that the Seventh Circuit left undecided in Mace and argue that the FDCPA should be read to bar plaintiffs from evading it by subdividing nationwide or multi-state class actions into a series of smaller class actions. Indeed, otherwise nothing would stop plaintiffs from bringing a separate class action for the smallest number of people that would satisfy the numerosity requirement. This tactic brings to mind Chief Justice’s hypothetical during oral argument in Standard Fire Insurance Co. v. Knowles—the case on whether plaintiffs can avoid removal under CAFA by stipulating that the class recovery would be less than the $5 million amount-in-controversy requirement—of a lawyer filing one class action for people “whose names begin with A to K” and another for “people whose names begin L to Z.”

Alternatively, the defendant could reframe the argument as a challenge to the superiority of an artificially small class action. Rule 23(b)(3) permits class certification only if the proposed class “is superior to other available methods for fairly and efficiently adjudicating the controversy,” and requires the court to consider (among other things) “the extent and nature of any litigation concerning the controversy already begun by or against class members” and “the desirability or undesirability of concentrating the litigation of the claims in the particular forum.” Fed. R. Civ. P. 23(b)(3)(B)-(C). In a FDCPA class action, litigating a wave of mini-class actions would be less efficient than a single nationwide class action and would increase the defendant’s liability—perhaps by 50 times or more—in ways that Congress did not intend.

If neither of these approaches succeeds, a defendant could argue that the court should exercise its discretion under FDCPA to reduce the amount of statutory damages awarded in consideration of the size of the class and the pendency of actions in other jurisdictions.

This morning I attended the oral argument before the Supreme Court in Standard Fire Insurance Co. v. Knowles, the first major case in which the Court will address the provisions of the Class Action Fairness Act of 2005 (CAFA).   For class-action lawyers on both sides, this case has been seven years in the making.   From where I sat, today’s arguments did not disappoint.

In a nutshell, the issue in Standard Fire is whether a named plaintiff may avoid removal to federal court of a putative class action that would otherwise satisfy CAFA’s $5 million amount-in-controversy requirement by stipulating that he or she does not seek to recover more than $5 million.  If the stipulation tactic were permissible, plaintiffs’ lawyers could avoid removal of class actions to federal court with ease.  That would allow a widespread evasion of CAFA, which was enacted in response to the massive abuse of the class-action device by a number of “magnet” state courts that were (and remain) hostile to out-of-state defendants.  (For a more extensive preview of the case, please see our earlier post.)

The oral argument (transcript (pdf)) focused on two disputed questions.

Continue Reading CAFA Showdown in the Supreme Court: Today’s Oral Argument In Standard Fire Insurance Co. v. Knowles

According to an interesting student note that will soon be published in the Stanford Law Review, the answer to both questions is “yes.” Specifically, the would-be class counsel must “protect[] the substantive legal rights of putative class members . . . from prejudice” “resulting from the actions of class counsel.”

The implications for defendants opposing class certification are significant: If the plaintiff’s lawyers have prejudiced the rights of absent class members, then they have demonstrated that they will not “fairly and adequate protect the interests of the class,” as required by Federal Rule of Civil Procedure 23(a)(4). And that means that a class can’t be certified—at least not with those lawyers at the helm. Here are three common ways in which plaintiff’s lawyers exalt their own interests over those of the absent class members:

  • Stipulations to limit the class recovery. Because the Class Action Fairness Act permits removal of class actions in which the amount in controversy exceeds $5,000,000, some plaintiffs’ lawyers have been trying to stipulate that the class recovery would be less than that amount in an attempt to evade removal. The Supreme Court will determine whether these stipulations actually do eliminate jurisdiction later this term in Standard Fire Insurance Co. v. Knowles. But regardless of the effect on federal jurisdiction, placing an artificial cap on the recovery of absent class members would appear to be a textbook violation of the lawyer’s fiduciary duties to the putative class.
  • Forgoing claims for punitive damages. Either as a means of reducing the amount in controversy to dodge removal under CAFA or in an effort to prevent individualized issues of law from swamping common issues, plaintiffs’ lawyers sometimes forswear punitive damages even when the cause of action they allege would otherwise support such damages. Because a legitimate punitive damages claim could (in theory) increase an individual’s recovery several fold, plaintiffs’ lawyers who eschew such a claim in an effort to satisfy the criteria for class certification (or remain in state court) have created an irreconcilable conflict with their own clients.
  • Jettisoning individualized claims. To try to tilt the playing field towards class certification with respect to some claims, plaintiffs’ lawyers often abandon other claims arising out of the same facts that are rife with individualized issues. For example, the complaint might seek restitution for the purchase price of an allegedly defective product under a false-advertising theory, but leave out claims for much greater damages from the resulting personal injuries or property damage that some absent class members would have experienced, because those latter claims involve individualized issues of causation. Yet if the low-value restitution claims are allowed to proceed on a class-wide basis, the doctrine of res judicata and prohibitions against claims splitting would bar absent class members from pursuing high-value claims personal-injury or property-damage claims in individual actions. Similarly, a plaintiffs’ lawyer might forgo pleading a common-law or statutory fraud claim because of the individualized issues that such a claim often entails and instead proceed only on a breach-of-contract claim even though the remedies for the former are broader than those for the latter.

Defendants in class actions should remain vigilant for these and other similar gambits. By attempting to increase the chances of class certification, putative class counsel may—ironically—supply the grounds for rejecting the very outcome they seek.

Today, Marcia Coyle of the National Law Journal and Daniel Fisher of Forbes each published previews of the just-commenced Supreme Court term that mention the three cases scheduled for argument that involve issues near and dear to the hearts of class-action practitioners: Standard Fire Insurance Co. v. Knowles, Comcast Corp. v. Behrend, and Amgen v. Conn. Retirement Plans.

Although the National Law Journal article is behind a paywall, my blog co-editor Archis Parasharami is quoted—which alone is enough to make a subscription worthwhile. And the Forbes piece quotes my colleague Dan Himmelfarb.  Happy reading!

The first question my colleagues and I ask when a client has been sued in a class action in state court is whether the case can be removed to federal court. Often, the only ticket out of state court is the Class Action Fairness Act of 2005 (“CAFA”), which authorizes removal of certain mass and class actions in which the “matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs.” 28 U.S.C. § 1332(d)(2). Accordingly, plaintiffs who want to stay in state court are constantly looking for ways to prevent removal under CAFA. The Supreme Court has granted certiorari in Standard Fire Insurance Co. v. Knowles, No. 11-1450, to decide the fate of one such tactic—attaching to the complaint a stipulation attesting that the plaintiffs seek less than $5 million in damages.

We’ll be talking more about Knowles on this blog in the coming weeks. In the meantime, we’re posting the lower court’s decision, the petition for certiorari, the cert-stage amicus briefs filed by the Chamber of Commerce of the United States of America and the Center for Class Action Fairness, the brief in opposition, and the reply brief.