Consumer Law & Policy Blog

Mark Moller Responds to Steve Gardner

by Mark Moller

In a recent post, Stephen Gardner makes some interesting comments about my recent article, Class Action Lawmaking: An Administrative Law Model.  Before I respond, let me quickly summarize what the article is, and isn't, trying to do: Stephen says I am advocating "turning federal courts into little more than administrative agencies that defer to the Legislative Branch as much as possible." That's not quite what I'm arguing and my apologies if I wasn't clearer.

To clarify, my article tries to draw out some parallels between class actions and agency proceedings in the field of statutory interpretation. In particular the article makes the following related claims: First, federal courts in the class context often assume far more discretion to "play" with the meaning of statutes passed by Congress than they would consider appropriate if the interpretive liberties were taken by an agency. These courts assume this extra interpretive "play" or "license" when the interpretive dispute affects the discretion of the court to certify a class; trial courts often play with the statute's meaning in these questionable ways in order to pave the way for certification.

If, however, federal courts followed the interpretive guidelines that apply to agencies, they would act with more restraint when interpreting such statutes, by hewing to the probable or "clear" meaning of the statute, even if selecting that meaning would mean rejecting certification and even if there's a plausible but not probable contrary reading that would permit the class action to go forward. That's how a good agency, one that follows the rules of interpretation that the Supreme Court commands agencies to follow, would do things.

To make this a little more concrete, say, for example, that a plaintiff's lawyer, we'll call him Joe Wheat, brings a class of hundreds of thousands of statutory fraud claims against Acme Corporation under a federal consumer protection statute. Acme argues this statute envisions case by case inquiries into the subjective reliance of individual class members. Wheat argues, instead, that the court should adopt a presumption of reliance that excuses plaintiffs from meeting such a burden. The courts I'm criticizing might, for example, pick Wheat's version based on a policy preference in favor of class certification-even if Acme's contrary version would be selected as the "clear" meaning under the interpretive rules that govern in administrative law.

Eleventh Circuit Issues Ruling on CAFA's "Mass Action" Provision

by Brian Wolfman

Yesterday, the Eleventh Circuit issued Lowery v. Honeywell Int'l, Inc., No. 06-16324, a treatise on CAFA, and, in particular, its "mass action" provisions.  CAFA crazies can read the whole thing by clicking above.  But, first, why not just digest the court's own synopsis of its 77-page opinion?  Here ya go:

First, we hold that any one defendant authorized under CAFA to remove the plaintiffs’ claims against that defendant to federal court may remove the action as a whole, regardless of whether other defendants in the action would be authorized to remove their claims.

Second, we hold that CAFA sets forth at least four threshold requirements for a federal court to have subject matter jurisdiction over a removed mass action. Where the parties are minimally diverse, the action consists of 100 plaintiffs or more, the plaintiffs’ claims share common questions of law or fact, and the potential aggregate value of all the claims exceeds $5,000,000, the action may be removed to federal court as a mass action.

Cato Institute on Reining in Class Actions

by Steve Gardner

There are absolutely many bad class actions, but I fear that this has resulted more in bad court decisions on good class actions than anything else. I think our current framework adequately addresses the problems, provided the trial courts are adequate guardians of class members’ rights.

A senior fellow at the conservative Cato Institute has a different opinion. See Mark Moller, Class Action Lawmaking: An Administrative Law Model, 11 Texas Review of Law & Politics 39 (2006).  Starting with the premise that courts are making law and not just interpreting it, Moller advocates turning federal courts into little more than administrative agencies that defer to the Legislative Branch as much as possible, using the Chevron model for determining the amount of deference to be paid (which this fellow thinks should be mighty much).

Class Action Settlement Scam

by Deepak Gupta

Oklahoma's Attorney General, W.A. Edmondson, is alerting the public to a new scam involving notices of a fictional class action settlement. This type of scam is particularly disturbing because it has the potential to make consumers wary of legitimate settlement notices, thereby decreasing response rates.

The scam, Edmonson said, comes in the form of a letter notifying consumers they have been identified as a victim of fraud in evidence presented in a class action lawsuit.

“The letter informs the consumer they have been selected to receive compensation under the terms of an out-of-court settlement,” Edmondson said. “The letter also contains a check in the amount of $2,975, and it directs the recipient to contact a specified law office within five business days to ‘facilitate the release’ of the full award – in this case $129,000.

“My suspicion is that when the consumer contacts the law firm, they are asked to provide bank account information so that the full award can be deposited. By the time the enclosed check bounces, the scammers will have had ample time to clean out the consumer’s bank account.”

Edmondson said his office has been unable to pinpoint the source of the scam, but there are several red flags within the letter.

“The letter states that all parties involved in the class action lawsuit are sealed, and no specific information is available regarding the type of scam to which the recipient has supposedly fallen victim,” Edmondson said. “The letter also requires the consumer to contact a Michigan law firm in a very short period of time, and because of a ‘gag order’ the consumer risks forfeiting his share of the money if he contacts anyone to check the validity of the settlement. Any one of these things would send up a red flag. Together, they set off lights and sirens.”

Another Week, Another Ninth Circuit CAFA Ruling

Brian Wolfman

It appears that the Ninth Circuit has a rule requiring it to issue at least one decision about the Class Action Fairness Act every week.  I recently blogged here and here on new Ninth Circuit CAFA decisions, the latter of which (Progressive West v. Preciado) addressed when a post-CAFA amendment to a pre-CAFA state-court complaint “relates back” to that complaint.  In its most recent decision, McAtee v. Capital One, No. 07-55065 (9th Cir. Mar. 16, 2007), the Ninth Circuit expounded on Preciado and held that any amendment to an original class action complaint filed in California state court, whether to add new causes of action, to add or replace plaintiffs, or to add or replace defendants, does not change the commencement date of the action for CAFA purposes, which is the date the original complaint was filed.  That holding arguably goes beyond the ordinary scope of the relation-back doctrine.  Cf. Fed. R. Civ. P. 15(c)(2) and (3).  The Ninth Circuit’s relation-back holding was based on California procedural  law, which the Ninth Circuit said it was required to apply under Erie.  Cf. Fed. R. Civ. P. 15(c)(1).

Another Ninth Circuit CAFA Decision

By Brian Wolfman

The day before yesterday, in Progressive West Insurance Company v. Preciado, No. 06-17367 (Mar. 6, 2007), the Ninth Circuit again ordered a class action remanded to state court on the ground that it did not meet the jurisdictional requirements of the Class Action Fairness Act. [I blogged yesterday about a March 2 Ninth Circuit ruling finding CAFA jurisdiction lacking.]

Here’s what happened in Progressive.  An insurance company sued one of its customers in state court for breach of contract, claiming reimbursement for medical expenses that it had paid on the customer’s behalf.  On February 17, 2005, the day before CAFA’s effective date, the customer filed a cross-claim (the equivalent of a federal counterclaim) on behalf of the “general public.”  The cross-claim alleged that the practice of seeking such reimbursements was an unfair business practice under California’s unfair competition law, Cal. Bus. & Prof. Code 17200 et seq.  The state court held that the customer had failed to make the class action allegations required to sustain an unfair competition claim on behalf of the general public.  See id. sec. 17203.  But the state court gave the customer leave to amend to add class action allegations.  The customer did so, but (obviously) after CAFA’s effective date.  The insurance company then removed the case to federal district court under CAFA.  The district court held that it lacked jurisdiction.

The Ninth Circuit affirmed for two independent reasons.  First, the court held that the case had been commenced before CAFA’s effective date and that the amended cross-claim related back to the original filing date as a matter of California law.  Therefore, CAFA did not apply.  Second, the court held that only a defendant, not a counterclaim defendant (that is, a plaintiff against whom a counterclaim is asserted), can remove a case under CAFA.  CAFA’s removal provision, the court explained, adopts the procedures of the general federal removal statute, 28 U.S.C. 1446(a), which applies only to “defendants.”

EU Considering Consumer Class Actions

by Deepak Gupta

Over the past few years, Europe has been moving, ever so slowly, towards adopting some kind of version of the American-style class action device.  The debates in Europe are an interesting mirror of the debates over class actions in the United States, reflecting a desire to promote efficiency while avoiding the potential for abuse.

Although a proposal in France to permit class actions was recently shelved, the Financial Times is reporting that the European Union's consumer affairs commissioner will announce next week that the EU is considering a new form of "collective redress" against providers of faulty goods or services. 

Ninth Circuit Issues New CAFA Holding

By Brian Wolfman

In Lowdermilk v. United States Bank National Assoc., No. 06-36085 (3/2/07),the Ninth Circuit has issued a new ruling under the Class Action Fairness Act.  The topic?  What a removing defendant must show to establish CAFA jurisdiction when the plaintiff's state-court complaint claims less than the $5 million jurisdictional amount.  Judge Bybee posed the question and answered it concisely in the first paragraph of his opinion:

In this case we are called upon to resolve a question of first impression: Under the Class Action Fairness Act of 2005 ("CAFA"), Pub. L. 109-2, 119 Stat. 4 (2005), when the plaintiff has pled damages less than the jurisdictional amount,what must the defendant prove in order to remove the case to federal court? We reserved this question in Abrego Abrego v. The Dow Chemical Co., 443 F.3d 676, 683 n.8 (9th Cir. 2006) (per curiam). We answer that the party seeking removal must prove with "legal certainty" that the amount in controversy is satisfied, notwithstanding the prayer for relief in the complaint. We conclude that the defendant in this case failed to meet this burden, and we affirm the judgment of the district court.

Judge Kleinfeld dissented.  In his view, the complaint was vague and self-contradictory and did not specify the amount in controversy.  When that occurs, he said, a preponderance-of-the-evidence standard -- and not the "legal certainty" test -- applies.  He would have remanded to the district court for a determination of the amount in controversy under the preponderance standard.

Texas Supreme Court: Putting the Squeeze on Class Actions?

by Steve Gardner

  Last Thursday, the Texas Supreme Court drove another nail in the class action coffin.

Justifiably, Texas is now considered by most class action lawyers (on both sides of the aisle) to be the state most hostile to class actions. One judge commented to the author, “I don’t know why anyone would bring a class action in state court in Texas because as far as I can tell, the Texas Supreme Court has abolished class actions — it just hasn’t said so.”

In Citizens Insurance Company of America v. Daccach, --- S.W.3d ----, 2007 WL 623799 (Tex. Mar. 2, 2007), Texas's High Court tightened the class action noose a bit further.  (Citations to the opinion will use Westlaw star system, e.g., “Daccach *8”.)

But, first, some history.  Starting at the beginning of this Millennium, the court has repeatedly applied excessively strict criteria to various aspects of class action litigation, running the gamut from making it almost impossible to bring a class action when reliance might be at issue, Schein v. Stromboe, 102 S.W.3d 675, 695 (Tex. 2002), to requiring a detailed trial plan.  Southwestern Refining Co., Inc. v. Bernal, 22 S.W.3d 425, 435 (Tex. 2000). The court has faulted trial plans that did not contain a rigorous analysis of (1) all causes of action, (2) how those claims will be tried, (3) every controlling substantive issue, (4) whether or how individual issues related to limitations will be determined, (5) how it would dispose of issues of reliance, (6) how it would try damages, both actual and punitive, (7) why individual issues did not predominate, and (8) why a class action is superior to other methods of resolving the dispute. State Farm Mutual Automobile Ins. Co. v. Lopez, 156 S.W.3d 550, 557 (Tex. 2004) [first three points]; Nat’l Western Life Ins. Co. v. Rowe, 164 S.W.3d 389 (Tex. 2005) [remaining points].

New Ninth Circuit CAFA Ruling on Burden of Proof

By Brian Wolfman

In Serrano v. 100 Connect, Inc., No. 06-17366 (Feb. 22, 2007), the Ninth Circuit has held that in assessing whether a federal district court should or must decline jurisdiction under the "exceptions" to jurisdiction of the Class Action Fairness Act, the burden is on the party resisting a federal forum to show that jurisdiction is lacking. Three other circuits had earlier come to the same conclusion.

As I discussed in an an earlier post, under CAFA, some cases just don’t meet CAFA’s basic jurisdictional requirements: $5 million in controversy, 100 class members, and minimal diversity. 28 U.S.C. 1332(d)(2), (d)(5)(B). Then there are 28 U.S.C. 1332(d)(3) and (d)(4), the supposed "exceptions" to jurisdiction.  Both have been called exceptions because they allow for remand or dismissal even where the basic prerequisites have been met.  Under (d)(3), the court "may, in the interests of justice and looking at the totality of the circumstances, decline to exercise jurisdiction" based on an evaluation of six factors.  Subsection (d)(4) sets out circumstances in which a district court "shall decline" to exercise jurisdiction. The circumstances in which this category is triggered are complicated and not worth exploring in detail here, but they focus on controversies that are highly localized. To me, the (d)(4) category does not comprise an "exception" to CAFA; it’s just a further, albeit unusual, limit on jurisdiction akin to the $5 million, 100-class-member, and minimal diversity limits.