Commercial Litigation and Arbitration
Gregory P. Joseph[*]
The Class Action Fairness Act of 2005 (‛CAFA“) dramatically changes class action practice, primarily in four ways:
The Act applies to all actions commenced on or after its date of enactment (CAFA § 9).
This article examines the principal features of CAFA and identifies a variety of practical and legal issues that it raises.
I. Expansion of Diversity Jurisdiction
The heart of CAFA is its expansion of federal diversity jurisdiction. Section 4 of CAFA inserts a new 28 U.S.C. § 1332(d), which, with a few limited exceptions, confers federal jurisdiction over any class action if (i) the claims of all plaintiffs, aggregated together, exceed $5 million, and (ii) at least one plaintiff is diverse from at least one defendant. See § 1332(d)(2) and (6).[1]
‛Class action“ is defined in § 1332(d)(1)(B) as any action filed pursuant to Federal Rule of Civil Procedure 23 or any analogous state rule or statute.[2] The grant of federal jurisdiction extends to uncertified, or putative, class actions under § 1332(d)(8).[3]
A. Assessing $5 Million in ‛Value“
If the complaint seeks money damages, application of the $5 million jurisdictional threshold is unlikely to be problematic. To the extent that there are questions concerning the reliability of the complaint’s prayer for relief, the federal courts have confronted analogous issues in the context of the preexisting $75,000 amount-in-controversy requirement of § 1332(a)
In class actions seeking only injunctive or other non-monetary relief, however, CAFA may dictate a change in the law as to how to assess the ‛value“ at stake in the litigation. The courts have historically confronted this issue, too, in the context of the amount-in-controversy requirement of § 1332(a). The recurring, problematic scenario has been one in which the cost to the defendant in complying with, for example, a requested injunction would exceed $75,000, but the benefit to the plaintiff in obtaining the injunction would not. Is it the cost to the defendant or the benefit to the plaintiff that is the appropriate gauge of ‛value“ for jurisdictional purposes?
Courts have generally applied one of three methodologies to determine whether the amount in controversy exceeds $75,000 — (1) some look at the question from the plaintiff’s viewpoint (the benefit to the plaintiff); (2) others hold that the viewpoint of either plaintiff or defendant may be used; and (3) yet others use the viewpoint of the party invoking federal jurisdiction. See generally 15 Moore’s Federal Practice § 102.109[1]-[5] (3d ed. 2004).
The wrinkle in class actions has been the Supreme Court’s ruling in Zahn v. International Paper Co., 414 U.S. 291 (1973), that the plaintiff class members’ claims may not be aggregated to satisfy the requisite jurisdictional amount. As a result, in class actions seeking non-monetary relief, many courts measure only the benefit to the plaintiff — each plaintiff separately — on the theory that to look at the total cost to the defendant would effectively be to aggregate the benefit to all plaintiffs, which is forbidden by Zahn.[4] Those courts that consider the cost to the defendant require that backdoor aggregation be avoided by ‛looking separately at each named plaintiff's claim and the cost to the defendant of complying with an injunction directed to that plaintiff.“[5]
Section 1332(d)(6) expressly contemplates aggregation of the plaintiffs’ claims in determining whether the $5 million ‛value“ requirement has been met. In light of that, and given CAFA’s goal of moving class actions from state to federal court (CAFA § 2(a)(4)(A), § 2(b)(2)), it would appear that the proper way to measure the ‛value of $5,000,000“ under § 1332(d)(2), in class actions seeking non-monetary relief, is to look either at the total benefit to the plaintiff class or the total cost to the defendant, were the class to prevail. Prior caselaw, premised on non-aggregation, is inapposite.
B. One-Third/Two-Thirds Rules
If a class action seeks money damages in excess of the $5 million threshold, § 1332(d)(2) opens the door to federal court. A key question then becomes whether the action will remain in federal court once it is lodged there. The initial answer to this question turns on the number of class members, and certain defendants, in the forum state. The complaint’s definition of the class, its legal theories and the identity of the named defendants are central to this threshold determination.
Generally, if one-third or fewer of all putative class members, in the aggregate, are citizens of the original forum state, the federal court must exercise jurisdiction over the class action. Putting aside limited statutory jurisdictional carve-outs discussed below (Part I(D)), CAFA does not allow the federal court to decline toexercise jurisdiction over a class action, unless at least one-third of all class members are citizens of the forum state (see § 1332(d)(3)-(4)).
Section 1332(d)(3) permits (but does not require) a federal judge to decline jurisdiction if (i) between one-third and two-thirds of all class members, in the aggregate, are citizens of the state in which the action was originally filed, and (ii) the ‛primary defendants“ are citizens of that state as well. In deciding whether to decline jurisdiction, the court must consider six factors, which are discussed in Part I(C)(5), infra.[6]
Section 1332(d)(4) obliges the federal judge to decline jurisdiction if either of two tests is satisfied.[7] One of the tests parallels § 1332(d)(3). Thus, under § 1332(d)(4)(B), the federal court must decline jurisdiction if (i) two-thirds or more of all class members, in the aggregate, are citizens of the state in which the action was originally filed, and (ii) the ‛primary defendants“ are citizens of that state as well.
The other test, set forth in § 1332(d)(4)(A), mandates that federal jurisdiction be declined in the following circumstances: (i) if more than (but not equal to) two-thirds of all class members are citizens of the original forum state; (ii) at least one defendant from whom ‛significant relief is sought“ and whose alleged conduct forms a ‛significant basis for the claims“ lives in that state; (iii) ‛principal injuries“ were suffered in that state; and (iv) no other class action has been filed by anyone in the prior three years asserting ‛the same or similar factual allegations against any of the defendants.“
C. Components of the One-Third/Two-Thirds Rules
The One-Third/Two-Thirds measure is, to put it indelicately, a body count. Whether a class member has allegedly suffered $1 or $1 million in damages is irrelevant. The question is the number of class members who are citizens of the original forum state. Note that the statute requires a cumulative count of all plaintiffs in all classes.
Counting plaintiffs is not always easy. Corporations rarely know with any certainty the geographic dispersion of their shareholders because stock is often purchased and held by intermediaries. Consumers buy through intermediaries, pick up purchases and ship to non-home addresses. Former employees move. Therefore, the count is likely to be highly litigable. Expert assistance with class dispersion issues, and battles of experts on the subject, may become a feature of contested jurisdictional disputes.
The complaint’s definition of the class is critical to this determination because it fixes the denominator of the One-Third/Two-Third fraction. Classes are commonly defined to exclude allegedly culpable parties (e.g., corporations and executives being sued, plus their affiliates, families, and the like). The count criterion is likely to stimulate creative class definition.
In addition to deciding whether the One-Third/Two-Thirds criteria are met, the court must determine the citizenship of ‛the primary defendants“ under § 1332(d)(3) and (d)(4)(B). There is no statutory definition of the phrase, ‛the primary defendants,“ which leaves it to the case law to develop. It is possible to postulate various ways of approaching the issue as a matter of substantive law — e.g., primary vs. secondary liability as statutorily defined; direct vs. vicarious liability at common law; actor vs. conspirator. But it is also possible that the statute is intending to focus on the target defendants in fact —the deep pockets from whom relief is actually available.
These are not necessarily inconsistent approaches. The statute speaks in the plural, and uses the definite article. ‛All“ is seemingly implied in the phrase, ‛the primary defendants.“ But the court retains the discretion to determine which defendants it deems ‛primary.“
Necessary/Indispensable Defendants. Because it is not difficult to define a class as limited to citizens of the forum state (or to maximize their number), the courts’ analysis of ‛the primary defendants“ — and ‛significant“ defendants discussed in the next section — will be crucial. This may trigger litigation as to precisely who are necessary or indispensable parties defendant under Federal Rule of Civil Procedure 19, given the causes of action asserted in the complaint, which raises the question whether one can be a ‛necessary“ defendant under Rule 19 but not a ‛primary“ defendant within § 1332(d)(3) and (d)(4)(B).
There is the further question whether, or to what extent, ‛the primary defendants“ are distinct from the category of ‛significant“ defendants described in § 1332(d)(4)(A)(II)(aa)-(bb). ‛Significant“ defendants refers to those from whom ‛significant relief is sought“ and whose alleged conduct ‛forms a significant basis of the claims.“ Neither of these quoted phrases is defined. Presumably a defendant who is ‛significant“ in the specified ways need not be a ‛primary defendant,“ or the drafters would simply have used that phrase again (compare § 1332(d)(4)(A)(II) with § 1332(d)(4)(B)). However, the converse would not appear to be true. A ‛primary defendant“ probably must satisfy one or both of the ‛significant“ criteria — that is, either be a deep pocket or a bad actor. In other words, ‛significan[ce]“ is a prerequisite to ‛primary“ status but is not necessarily sufficient to satisfy it.
Given the fluidity of the undefined phrases characterizing defendants, the plaintiffs’ selection of legal theories and defendants is as important as class definition. One could imagine, for example, a plaintiff suing only in-state corporate executives who have insurance and indemnification rights — and suing them only under insurable and indemnifiable theories — in an effort to avoid naming an out-of-state corporation because, if sued, the corporation would be a ‛primary defendant“ and lead to the loss of a state forum.
If more than two-thirds of the class members are citizens of the forum state, and at least one ‛significant“ defendant (but not every one of ‛the primary defendants“) is also a citizen there, the court must also find that ‛principal injuries resulting from the alleged conduct or any related conduct of each defendant“ were incurred in the in the original forum state. ‛Principal“ is not defined. In a money damages case, is it a majority of the claimed loss? A plurality? In a non-monetary action, it may be even harder to decide where ‛principal injuries“ are felt. In, for example, an action for an accounting or injunction, does the presence of more than two-thirds of the class in the forum state necessarily mean that this criterion is satisfied?
If between one- and two-thirds of the plaintiff class and ‛the primary defendants“ are citizens of the original forum state, the federal court may decline to exercise jurisdiction only after it has considered the six statutorily-prescribed factors set forth in § 1332(d)(3)(A)-(F):
(A) whether the claims asserted involve matters of national or interstate interest;
(B) whether the claims asserted will be governed by laws of the State in which the action was originally filed or by the laws of other States;
(C) whether the class action has been pleaded in a manner that seeks to avoid Federal jurisdiction;
(D) whether the action was brought in a forum with a distinct nexus with the class members, the alleged harm, or the defendants;
(E) whether the number of citizens of the State in which the action was originally filed in all proposed plaintiff classes in the aggregate is substantially larger than the number of citizens from any other State, and the citizenship of the other members of the proposed class is dispersed among a substantial number of States; and
(F) whether, during the 3-year period preceding the filing of that class action, 1 or more other class actions asserting the same or similar claims on behalf of the same or other persons have been filed.
Factor (A) presumably weighs in favor of maintaining federal jurisdiction if the claims involve matters of any significant national or interstate interest. ‛Interest“ is undefined.
Factor (B) weighs in favor of declining federal jurisdiction if the claims are governed by the laws of the original forum state but in favor of maintaining jurisdiction if they are governed by the laws of other states. Analogously, in exercising its discretion, the court presumably would consider that federal jurisdiction is favored if the action is governed by federal law, an interstate compact, the law of another country, or any source of law other than that of the original forum state.
Factor (C) is subjective, focusing on intent — whether the class action was pleaded in a manner designed to avoid federal jurisdiction. That subjective intent may be objectively inferable from the face of the complaint. It is in analyzing this factor that the court may take into account whether class counsel’s creativity in defining the class (to maximize the number citizens of the forum state), selecting the claims and choosing the defendants should result in a federal or state forum.
Factor (D) will favor declining federal jurisdiction if the original forum state has a ‛distinct nexus“ with the class, the harm or the defendants, and will favor maintaining federal jurisdiction if it does not. There is no statutory definition of the phrase, ‛distinct nexus.“ The presence of more than one-third of the plaintiff class in itself might have been thought to form such a nexus between the forum state and the class, the harm and the defendants. But the structure of the statute may contemplate something more or different, given that the presence of more than one-third of the plaintiffs in the forum state is a precondition to the court reaching the ‛nexus“ issue.
Factor (E) prescribes a second body count. It will weigh in favor of declining federal jurisdiction if the number of class members in the forum state is, in the aggregate, ‛substantially larger“ than the number of class members in any other state, and the out-of-state class members as a whole are dispersed among ‛a substantial number“ of states. Neither use of ‛substantial“ is defined. Foreign class members are not mentioned, although nothing would prevent the judge from considering them.
Factor (F) will favor federal jurisdiction if prior class actions have been filed by anyone in the prior three years asserting the same or similar claims. Note that factor (F) does not require that the prior class actions have been brought against any of the same defendants. This is not an inadvertent omission — compare § 1332(d)(3)(F) with § 1332(d)(4)(A)(III). It is sufficient that there have been prior class actions brought by anyone against any other defendants asserting the same or similar claims(e.g., other members of the same industry). This factor will be important if, for example, there are multiple state class actions filed against the same defendant, with the complaints in each state tailored to maximize the number of instate plaintiffs and defendants.
Section 1332(d)(7) sets forth three separate times for determining the citizenship of the plaintiff class members — ‛as of the date of filing of the complaint or amended complaint, or, if the case stated by the initial pleading is not subject to Federal jurisdiction, as of the date of service by plaintiffs of an amended pleading, motion, or other paper, indicating the existence of Federal jurisdiction“ —and no time for determining the citizenship of the defendants.[8]
Under established Supreme Court jurisprudence, the time for determining citizenship for diversity purposes is generally the date of the filing of the complaint.[9] CAFA has not explicitly changed this with respect to the defendants, and it is the first of the three points in time as of which the citizenship of the class ‛shall be determined“ under § 1332(d)(7). With respect to defendants, one could argue that it would be sensible to consider the citizenship of the defendants each time the citizenship of the plaintiffs must be considered. However, there is no statutory basis for doing so and, if it were done, courts would be constrained to address the problem of defendants fleeing the state in an effort to affect federal jurisdiction.
Section 1332(d)(7) also provides that, if the case stated by the initial pleading is not subject to federal jurisdiction, then the citizenship of the class shall be determined as of the date that the plaintiff serves a document reflecting the existence of federal jurisdiction. As discussed in Part II(A), below, the one-year absolute time limit on removal (28 U.S.C. § 1446(b)) has been removed by CAFA, in 28 U.S.C. § 1453(b). Consequently, upon the appearance of federal jurisdiction at any time during the pendency of a state class action, the action may be removed to federal court. Theoretically, a directed verdict at the end of the plaintiff’s case that eliminates the claims of a significant sub-class or other group of class members could change the One-Third/Two-Thirds calculus and lead to removal. This is discussed further in Part II(A).
The third time at which class citizenship ‛shall be determined“ under § 1332(d)(7) is ‛as of the date of the filing of the ... amended complaint.“ This reference is not to an amended complaint that confers federal jurisdiction — that type of amended complaint is separately set forth in the statute, as discussed immediately above. This ‛amended complaint“ is, then, by definition one that did not first ‛indicat[e] the existence of Federal jurisdiction.“
This statutory mandate requires that class citizenship be reassessed as of the filing of any amended complaint, even after removal. In many types of complex litigation, amended pleadings are the norm, not the exception. Depending on the nature of the class, citizenship may vary significantly over time (e.g., heavy arbitrage of a corporation’s securities; movement of consumers; retirement; bankruptcy or dissolution). Federal jurisdiction could be acquired (or lost) simply by the timing of the plaintiffs’ filing of an amended complaint, regardless of the nature of the change in any claims.
Existing Supreme Court precedent, which retains vitality outside of the class action context, holds that the citizenship of partnerships and other unincorporated entities is generally determined by piercing through to the citizenship of each member.[10] Section 1332(d)(10), in contrast, treats them essentially as equivalent to corporations, providing that, for purposes of § 1332(d) and removal, an unincorporated association is deemed a citizen of the state(s) under whose laws it is organized and in which it has its principal place of business.[11]
D. Jurisdictional Carve-Outs
CAFA excludes from the reach of § 1332(d):
E. Mass Actions
Section 1332(d)(11)(A) provides that, for purposes of § 1332(d) and removal, a ‛mass action shall be deemed to be a class action“ if it otherwise satisfies the requirements of § 1332(d)(2)-(10).[12] Mass actions are defined to include only cases joined for trial and, like class actions, only those involving 100 or more plaintiffs. See § 1332(d)(11)(B).[13]
While nothing in the class action provisions limits the reach of the jurisdictional provision to plaintiff class actions, the mass action grant of jurisdiction focuses on multiple plaintiffs, not defendants — specifically, ‛monetary relief claims of 100 or more persons [that] are proposed to be tried jointly on the ground that the plaintiffs' claims involve common questions of law or fact.“ Thus, also unlike class actions, mass actions must be claims for ‛monetary relief“ (id.). Nor can a mass action be transferred pursuant to 28 U.S.C. § 1407, the Multidistrict Litigation (‛MDL“) statute, without the consent of a majority of the plaintiffs. See § 1332(d)(11)(C)(i).[14]
$75,000 Amount in Controversy Retained
Section 1332(d)(2) aggregates plaintiffs’ claims in determining whether the $5 million jurisdictional threshold is satisfied. In the class action context, if that and the other criteria of § 1332(d)(2)-(10) are satisfied, the entire class action is subject to federal jurisdiction. Not so for mass actions.
Under § 1332(d)(11)(B)(i), the grant of federal jurisdiction ‛shall exist only over those plaintiffs whose claims in a mass action satisfy the jurisdictional amount requirements under subsection (a),“ which sets forth the $75,000 amount in controversy. The text of § 1332(d)(11)(B)(i) appears to be straightforward, codifying in the mass action context the Supreme Court’s ruling in Zahn that the claims of plaintiff class members may not be aggregated to satisfy the jurisdictional threshold — even though the claims are aggregated for purposes of determining whether the $5 million jurisdictional threshold is reached.
The continuing vitality of Zahn has split the circuits in class actions in which at least one class member satisfies the jurisdictional amount in controversy. Many courts reason that, under 28 U.S.C. § 1367, this is sufficient to confer supplemental jurisdiction over all class members.[15] Others disagree.[16]
Because § 1332(d)(11)(B)(i) requires each plaintiff to ‛satisfy the jurisdictional amount requirements under subsection (a),“ it would seem to preclude reliance on supplemental jurisdiction under § 1367 to confer jurisdiction on any mass plaintiff who, alone, does not have a claim exceeding $75,000. If that is correct, removal of a mass action will not necessarily remove all cases from state court. The result may be two mass actions, rather than one, with the smaller claims remaining in state court and the larger removed to federal court. The supplemental jurisdiction statute, however, is not entirely clear and has already split the circuits in connection with Zahn. CAFA could provide a second opportunity, particularly once the federal court has jurisdiction over the larger claimants and claims, although it does not appear that this is the intent of CAFA’s drafters.
An important question is which claims and claimants are counted for purposes of determining whether the $5 million threshold, 100-plaintiff minimum and One-Third/Two-Thirds ratios are satisfied. Are the criteria of § 1332(d)(2)-(10) to be applied to all of the plaintiffs before the state court or only those whose claims satisfy the $75,000 amount in controversy?
Assume that there are 100+ plaintiffs in state court but fewer than 100 of them satisfy the $75,000 jurisdictional threshold. Defendant removes. At which plaintiffs does the federal court look? If only those who satisfy the $75,000 amount in controversy are relevant, then the definition of ‛mass action“ is not satisfied for want of a sufficient number of plaintiffs. But if the court looks at the entire group of plaintiffs before the state court, the case may be removable even though the action that remains in federal court will not satisfy the 100 plaintiff requirement.
Even if there are more than 100 plaintiffs whose claims each exceed $75,000, the court still must decide on the group of plaintiffs it examines for purposes of aggregating claims and determining if the One Third/Two Thirds ratios are satisfied. The definition of ‛mass action“ could be read to require the court to consider all of the plaintiffs before the state court, on the notion that the statutory exception in § 1332(d)(11)(B)(i) is not to the defined term ‛mass action“ but, rather, to the federal court’s ability to exercise jurisdiction over the plaintiffs bringing the smaller claims. Any such reading would be an invitation to plaintiffs’ counsel to load up on small claimants from the forum state in order to satisfy the Two-Thirds test, and thereby preclude removal or mandate remand.
It seems to make little sense to read that statute to require the court to consider the claims of state court plaintiffs over whom jurisdiction does not exist. Under § 1332(d)(7), the district court must reevaluate whether the citizenship requirements of § 1332(d)(2)-(4) are satisfied every time a new or amended complaint is filed (see Parts I(C)(6), supra, and I(E)(3), infra). If the small claims are considered at the time of removal for purposes of applying the citizenship ratios, the composition of the group may be substantially different at the time of amendment (because the smaller claims will no longer be before the federal court), and that could lead to differing jurisdictional determinations on essentially the same facts.
A reading more consonant with the structure and intent of the statute would be to take the $75,000 amount in controversy into account in determining whether a ‛mass action“ exists, and in doing so to eliminate from consideration any plaintiffs whose claims are so small that they cannot properly be before the district court in any event.
As discussed in Part I(C)(6), above, § 1332(d)(7) sets forth three separate times for determining the citizenship of the plaintiff class members — and, thus, mass plaintiffs — ‛as of the date of filing of the complaint or amended complaint, or, if the case stated by the initial pleading is not subject to Federal jurisdiction, as of the date of service by plaintiffs of an amended pleading, motion, or other paper, indicating the existence of Federal jurisdiction.“
In the mass action context, this would appear to require the district court to reexamine the citizenship of the entire group of plaintiffs every time any one files an amended complaint or any new plaintiff joins the group. Putting aside the frequency with which the court could be obliged to conduct this analysis, it could conceivably lead to a situation in which jurisdiction is lost by the addition of a sufficient number of forum-state plaintiffs — only to be regained by the subsequent infusion of a sufficient number of out-of-state plaintiffs. An amendment after partial settlement could also cause loss of jurisdiction, which could affect settlement strategies.
The following cases are carved out of the definition of ‛mass action:“
Of these, the most curious is the exclusion of mass actions that have been joined for trial purposes on motion of the defendant. The definition of ‛mass action“ in § 1332(d)(11)(B)(i) requires that the cases ‛are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact.“ The exclusion in § 1332(d)(11)(B)(ii)(II) carves out actions in which ‛the claims are joined upon motion of a defendant.“ This would appear to leave plaintiffs’ counsel significant latitude in avoiding a federal forum. Unless the plaintiff moves to join the claims for trial, it appears that the court must do so sua sponte in such a fashion as to create federal jurisdiction. Query whether an informal request by the defendant to the court, not in the form of a motion, would be considered a ‛motion“ for purposes of § 1332(d)(11)(B)(ii)(II).
Under the Supreme Court’s opinion in American Pipe v. Utah, 414 U.S. 538 (1974), the pendency of a class action tolls the applicable statute of limitations for class members. Section 1332(d)(11)(D) extends this doctrine to mass actions removed pursuant to CAFA for the duration of their pendency in federal court.[17] This should operate to prevent prejudice to plaintiffs whose claims are removed but subsequently dismissed, at any point in the litigation, for lack of jurisdiction.
II. Changes to Removal Practice
CAFA’s removal provisions (new 28 U.S.C. § 1453) are designed to work hand in glove with its jurisdictional provisions. Section 1453 modifies removal procedure in the following respects in class actions:
A. One-Year Deadline for Removal Eliminated
Section 1453(b) eliminates the strict prohibition against removing a state court class or mass action more than one year after the action was commenced, a prohibition that is imposed on all other actions by § 1446(b). See Caterpillar Inc. v. Lewis, 519 U.S. 61, 67 (1996) (‛No case ... may be removed from state to federal court based on diversity of citizenship ‘more than 1 year after commencement of the action’“). Section 1453(b) provides that ‛the 1-year limitation under section 1446(b) shall not apply“ in the class action context.[18]
The elimination of the one-year deadline operates to allow removal even at advanced stages of the state court litigation — permitting the filing of a notice of removal within 30 days after, for example, a class certification order, dismissal decision, summary judgment opinion, directed verdict or even jury verdict ‛from which it may first be ascertained that the case is one which is or has become removable“ (§ 1446(b)). In this manner, the elimination of the one-year deadline resurrects, in the class and mass action context, many of the same problems that prompted enactment of that deadline in 1988:
The [one-year deadline] addresses problems that arise from a change of parties as an action progresses toward trial in state court. The elimination of parties may create for the first time a party alignment that supports diversity jurisdiction. Under section 1446(b), removal is possible whenever this event occurs, so long as the change of parties was voluntary as to the plaintiff. Settlement with a diversity-destroying defendant on the eve of trial, for example, may permit the remaining defendants to remove. Removal late in the proceedings may result in substantial delay and disruption.
H.R. Rep. No. 889, § 1009, 100th Cong., 2d Sess. (1988).
B. Defendant’s Citizenship in Forum State Irrelevant
Section 1441(b) generally prohibits a defendant from removing an action that is brought against it in the courts of a state in which the defendant is a citizen. The theory is that such a defendant is unlikely to suffer the potential local prejudice that animates, in part, diversity jurisdiction. Section 1453(b) excepts class actions from this provision, permitting removal ‛without regard to whether any defendant is a citizen of the State in which the action is brought.“
As a result, there will be no reason for the plaintiff to name a defendant who resides in the forum state for the purpose of destroying diversity. Nonetheless, the plaintiff may remain motivated to do so to satisfy the requirement that at least one ‛significant“ defendant be a citizen of the forum state, in an effort to achieve mandatory remand under § 1332(d)(4)(A)(II).
C. Any Defendant May Remove
Ordinarily, under § 1446(b), all defendants must join in a notice of removal.[19] Section 1453(b) eliminates the unanimity requirement, providing that the ‛action may be removed by any defendant without the consent of all defendants.“ This provision eliminates any incentive for the plaintiff to include a ‛friendly“ defendant who can block removal.
D. Appellate Review
Outside the class action context, appellate review of a remand order is largely precluded by § 1447(d). In contrast, § 1453(c) provides a very accelerated, discretionary appellate review process for class actions remanded to state court. It requires the defendants must appeal within 7 days of the remand order, and the court of appeals must issue its final judgment within no longer than 70 days from the date that the appeal is filed (60 days plus one permissible extension of 10 days). If a final judgment on the appeal is not rendered within that abbreviated period, the appeal is deemed denied.[20] Note that the statute does not require an opinion from the court of appeals, only a final judgment.
E. Non-Removable Class Actions
The same three categories of action that fall outside the jurisdictional grant (securities, internal affairs, fiduciary duty (see § 1332(d)(9)(A)-(C), discussed in Part I(D), above) are not removable under § 1453(d).[21]
E. Mass Actions
Mass actions that fall within the jurisdictional grant of § 1332(d) also fall within the removal provisions of § 1453. See § 1332(d)(11)(A).[22]
III. Class Action Settlements
A. All Class Actions: Timing and Governmental Notification Requirements
CAFA imposes on defendants the duty of notifying federal and state officials — in potentially every state — of the settlement of every class action. The defendants must serve these notices within 10 days after filing a proposed settlement with the district court, and the district court may not issue final approval earlier than 90 days after the last governmental official is served. See 28 U.S.C. § 1715(b), (d).
Section 1715(a) identifies the Attorney General of the United States as the ‛appropriate Federal official“ to be notified of any class action settlement, except where the defendant is depository institution — or nondepository subsidiary of a depository institution — in which case the appropriate federal official is the pertinent federal regulator (provided that some of the allegations in the complaint are subject to regulation).[23]
Similarly, § 1715(a) identifies the state Attorney General as the default ‛appropriate State official“ to be notified of any class action settlement. However, the statute first looks to any state regulator — or licensing authority — with jurisdiction over the subject matter of any of the allegations of the complaint. If such a regulator or licensing authority exists, then that is the person to whom notification is to be given.[24]
This has potentially broad ramifications. It applies equally to a law firm, accounting firm, medical practice or other group of licensed professionals, as to an insurance company regulated in multiple states. The statute appears to contemplate multiple notifications arising out of the same action because it focuses on the regulator or licensing authority that ‛authorizes the defendant to conduct business in the State.“ That requires a separate analysis for each defendant.
Under § 1715(b), notice must be sent to the ‛appropriate State official of each State in which a class member resides.“ Therefore, the notifications must be as geographically dispersed as the class. Different officials may be ‛appropriate“ depending on the state. An insurance company, for example, may not be authorized to do business in all 50 states — or a law firm may not have lawyers admitted in all states — but either may be a defendant in a class action in which class members reside in all states. The regulatory or licensing authority is the ‛appropriate State official“ in those states in which the defendant is regulated or licensed, and the state Attorney General appears to be the ‛appropriate State official“ in other states.
The Attorneys General of every state should as a practical matter receive notice of every proposed class settlement, in addition to all reasonably pertinent regulators and licensing authorities. That is because the general penalty for a failure of notice is that class members may choose not to be bound by the settlement agreement — but they are precluded from doing so if notice has been directed to the appropriate federal official ‛and to either the State attorney general or the person that has primary regulatory, supervisory, or licensing authority over the defendant.“ See § 1715(e)(1)-(2),[25] which are discussed in Part III(A)(1)(g), below.
Section 1715(b) dictates that the defendant must serve the mandatory notice within 10 days after a proposed class action settlement is filed with the district court.[26] The notice must include:
Most of these items are straightforward, but a few merit discussion. For example, item 4 refers to any ‛proposed or final class action settlement,“ while item 5 separately requires disclosure of ‛any settlement or other agreement.“ It is not entirely clear what item 4’s ‛settlement“ is, to the extent that it is intended to be distinct from item 5’s ‛settlement or other agreement contemporaneously made between class counsel and counsel for the defendants.“ It might be thought that item 4 refers to a Memorandum of Understanding (‛MOU“) because that predates, and is not ‛contemporaneous“ with the settlement agreement, but an MOU might itself be a ‛settlement or other agreement.“ It would be safest to furnish something in response to item 4, even if it is nothing more than a short summary of the settlement that is substantially the same as the class notice provided pursuant to item 3.
The disclosure of all agreements ‛contemporaneously made“ with the settlement agreement, required by § 1715(b)(5), may require disclosure of previously confidential documents. For example, this will require disclosure of any side agreement with a ‛blow provision“(setting forth a percentage of opt-outs that, if met, triggers an option on the part of the defendants to withdraw from the settlement).
The ‛final judgment“ and ‛notice of dismissal“ identified in § 1715(b)(6) are to be furnished in advance of settlement approval. This would pick up any such documents that may have been filed during the course of the class action. It is possible that this section intends to capture disclosure of the proposed final judgment or stipulation of dismissal (although these are customarily exhibits to the settlement agreement in any event).
Item 7 is likely to prove the most difficult. As observed in connection with the requirement that plaintiffs be counted for purposes of the One Third/Two-Thirds ratios (Part I(C)(1), supra), it is often difficult to know with any certainty precisely which states plaintiffs call home. That makes it likely that the ‛reasonable estimate“ alternative of § 1715(b)(7)(B) will be necessary. If economists, accountants and actuaries were not sufficiently inseparable from class actions before CAFA, they are even more necessary now.
Under § 1715(d), the district court may not enter an order giving final approval of a proposed settlement until at least 90 days after the last ‛appropriate“ state or federal official receives the notice discussed above.[27] It will be necessary, as a practical matter, to leave in a reasonable cushion to avoid a subsequent attack on the order as untimely, given the risk that any of the governmental notifications is delayed.
Class members are not bound by any settlement, even if they personally receive notice of it, if they can show that the defendants failed to give to the appropriate federal and state officials the notice required by § 1715(b). See § 1715(e)(1).[28] Class members are, however, bound by the settlement if notice was ‛directed to“ the ‛appropriate Federal official“ and ‛either the State attorney general or“ the right state regulator. See § 1715(e)(2).[29]
This leaves room for dispute as to who the ‛appropriate Federal official“ is, which suggests that it would be prudent to serve the Attorney General of the United States — in addition to all appropriate federal regulators — to mount the strongest defense against any potential later challenge. With respect to state officials, as observed above(Part III(A)(1)(d)), it would be sensible to serve the Attorneys General of all conceivably pertinent states to take advantage of the safe harbor of § 1715(e)(2).
B. Coupon Settlements and Other Consideration-Related Provisions
Courts have long perceived a problem with ‛coupon“ settlements, in which the consideration reaching the class consists of a coupon or voucher. ‛Actual monetary compensation rarely reaches the class members. Concurrently, and perhaps coincidentally, such settlements are virtually always accompanied by munificent grants of or requests for attorneys' fees for class counsel.“ Davis v. Carl Cannon Chevrolet-Olds, Inc., 182 F.3d 792, 798 (11th Cir. 1999) (Nangle, D.J., concurring).
CAFA addresses the ‛coupon“ settlement issue in 28 U.S.C. § 1712, by focusing primarily on attorneys’ fees.
Nowhere does the statute define a ‛coupon“ or ‛coupon settlement.“ This definitional question may be resolved on what, in other contexts, is referred to as ‛the I-know-it-when-I-see-it test.“[30] But it may also be problematic. Is a settlement in which current cell phone customers receive free minutes a ‛coupon“ settlement? Not in the Western District of Missouri.[31] A distribution of securities is a ‛paper“ settlement, but is it a ‛coupon“ settlement? One would think not, depending on the nature of the securities. What about a certificate or voucher (other than a formal security) that is tradable?
These questions and similar questions will be answered by the cases over time. As discussed in Part III(B)(1)(b), below, however, one characteristic of a ‛coupon“ that can fairly be gleaned from the statute (§ 1712(a), (d)) is that it should be capable of being ‛redeemed.“
If, as is usually the case, the plaintiffs’ attorneys' fee is contingent, then any award of fees attributable to the value of ‛coupons“ must be based on the value to class members of coupons that are ‛redeemed.“ See § 1712(a).[32] If plaintiffs’ counsel also wins equitable relief, counsel may is entitled an appropriate fee for receiving the injunction (see § 1712(b)),[33] but that portion of the fee based on the ‛coupon“ consideration must be based on the value of ‛redeemed“ coupons only. See § 1712(c)(1).[34] Only coupons redeemed by class members — and not any donated to, or redeemed by, charitable or public entities — may be considered in calculating the attorneys' fee award. See § 1712(e).[35]
The necessary consequence of the redemption requirement is that attorneys’ fees cannot be calculated until the time for redemption of the coupons has expired. This necessarily imports delay into the award of attorneys' fees attributable to the coupon award. Prior to CAFA, it was common for a fee award to issue at the time the settlement was approved. CAFA’s requirement that the actual redemption rate form the basis of the fee award attributable to the coupon lifts from the court the burden of estimating the likely redemption rate. Even before CAFA was enacted, some judges delayed fee awards in coupon cases to await the actual redemption results.[36]
Section 1712(d) authorizes the court to receive expert testimony concerning ‛the actual value to the class members of the coupons that are redeemed.“[37] This authorization was unnecessary — courts often received expert assistance in connection with class settlements before CAFA. It might, therefore, best be read as an implicit suggestion as to the advisability of receiving expert testimony with respect to the value of the ‛coupons that are redeemed“ (which form the basis on which attorneys' fees are to be calculated).
Before the court may approve any ‛coupon“ settlement under § 1712(e), it must hold ‛a hearing to determine whether, and making a written finding that, the settlement is fair, reasonable, and adequate for class members.“ This is largely redundant of Federal Rule of Civil Procedure 23(e)(1)(C).
Section 1713 addresses the unusual situation in which the proposed settlement involves an out of pocket payment by class members such that the settlement as a whole results in a net loss to them. The statute replaces the existing test of ‛fair, reasonable and adequate“ (Rule 23(e)(1)(C)) with a new standard — that ‛nonmonetary benefits to the class member substantially outweigh the monetary loss.“[38] The statute does not elucidate the touchstone to be used in valuing ‛nonmonetary benefits,“ but the adverb ‛substantially“ makes it clear close cases are to be decided by the court against settlement approval.
Another relatively unusual scenario addressed by CAFA involves unequal payments to class members based solely on their relative proximity to the courthouse. Section 1714 bars judicial approval of any ‛proposed settlement that provides for the payment of greater sums to some class members than to others solely on the basis that the class members to whom the greater sums are to be paid are located in closer geographic proximity to the court.“ There may be good reason why geographically proximate class members are disproportionately favored in a class settlement — e.g., they live closest to, and are most harmed by, a pollution site. This would appear to be a reason other than their ‛closer geographic proximity to the court“ even though the two factors coincide. Such a settlement should not be barred by § 1714 because the class members’ aggravated injury means that their enhanced compensation is not ‛solely on the basis“ of their proximity to the courthouse.
C. Impact on Existing Rules
Federal Rule of Civil Procedure 23 was extensively amended in 2003. CAFA was originally drafted before the 2003 amendments to Rule 23 took effect, and § 7 of CAFA provides that the 2003 Rule 23 amendments ‛shall take effect on the date of enactment of this Act or on December 1, 2003“ — a somewhat anachronistic provision, given that CAFA was enacted in February 2005. This provision is important, though, because it explains why, in certain respects, CAFA and amended Rule 23 are somewhat redundant. Moreover, the timing and notification requirements comprise a new layer of obligation and detail not found in Rule 23(e). In addition, the attorneys’ fee, coupon and other consideration-related provisions of CAFA supplement and override any inconsistent judicial discretion that otherwise exists under Rule 23(e), (g) and (h).
One important change not effected by CAFA warrants mention. In 2003, Rule 23(e)(1)(A) was amended to provide that the court need not approve any settlement or voluntary dismissal prior to class certification. See Committee Note (2003) to Fed.R.Civ.P. 23 (‛The new rule requires approval only if the claims, issues, or defenses of a certified class are resolved by settlement, voluntary dismissal, or compromise“). CAFA does not affect the parties’ ability to effect pre-certification settlements. The statute applies to any ‛proposed settlement,“ but that term is defined to mean ‛an agreement regarding a class action that is subject to court approval“ (28 U.S.C. § 1712(6)). Because a pre-certification settlement is not subject to court approval, it is not a ‛proposed settlement“ within CAFA.
Conclusion
Had Congress directed the Advisory Committee on the Federal Rules of Civil Procedure to draft rules effecting the changes wrought by the Class Action Fairness Act, the result would have been an interwoven, coherent whole. CAFA effects change but coherence is not entirely achieved. As former Securities and Exchange Commissioner A. A. Sommer once wrote concerning the Private Securities Litigation Reform Act: ‛There is something called the ‘Law of Unintended Consequences.’ Who enacted this law, who enforces it, and its exact scope are obscure. However, from time to time it manifests itself....“[39] The intended consequences of the Class Action Fairness Act of 2005 are clear. The unintended consequences may prove as interesting as those intended by the drafters.
* Gregory P. Joseph Law Offices LLC, New York. Fellow, American College of Trial Lawyers; former Chair, ABA Section of Litigation; former member, Advisory Committee on the Federal Rules of Evidence. Author, Civil RICO: A Definitive Guide (2d ed.); Sanctions: The Federal Law of Litigation Abuse (3d ed.); Modern Visual Evidence. Editorial Board, Moore’s Federal Practice (3d ed.). ©2005 Gregory P. Joseph.
[1] Section 1332(d)(2) provides:
(2) The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which—
(A) any member of a class of plaintiffs is a citizen of a State different from any defendant;
(B) any member of a class of plaintiffs is a foreign state or a citizen or subject of a foreign state;
(C) any member of a class of plaintiffs is a citizen of a State and any defendant is a foreign state or a citizen or subject of a foreign state.
Aggregation of class members’ claims is dictated by §1332(d)(6), which provides: ‛In any class action, the claims of the individual class members shall be aggregated to determine whether the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs.“
[2] Section 1332(d)(1)(B) provides:
(B) the term ‛class action“ means any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action....
[3] Section 1332(d)(8) provides:
This subsection shall apply to any class action before or after the entry of a class certification order by the court with respect to that action.
[4] See, e.g., Packard v. Provident Nat'l Bank, 994 F.2d 1039, 1050 (3d Cir. 1993). The continuing vitality of Zahn in cases in which at least one class member’s claim exceeds $75,000, in light of the supplemental jurisdiction statute (28 U.S.C. § 1367), is in question. See Part I(E)(1), infra.
[5] Uhl v. Thoroughbred Tech. & Telecomms., Inc., 309 F.3d 978, 983 (7th Cir. 2002).
[6] Section 1332(d)(3) provides:
(3) A district court may, in the interests of justice and looking at the totality of the circumstances, decline to exercise jurisdiction under paragraph (2) over a class action in which greater than one-third but less than two-thirds of the members of all proposed plaintiff classes in the aggregate and the primary defendants are citizens of the State in which the action was originally filed based on consideration of—
(A) whether the claims asserted involve matters of national or interstate interest;
(B) whether the claims asserted will be governed by laws of the State in which the action was originally filed or by the laws of other States;
(C) whether the class action has been pleaded in a manner that seeks to avoid Federal jurisdiction;
(D) whether the action was brought in a forum with a distinct nexus with the class members, the alleged harm, or the defendants;
(E) whether the number of citizens of the State in which the action was originally filed in all proposed plaintiff classes in the aggregate is substantially larger than the number of citizens from any other State, and the citizenship of the other members of the proposed class is dispersed among a substantial number of States; and
(F) whether, during the 3-year period preceding the filing of that class action, 1 or more other class actions asserting the same or similar claims on behalf of the same or other persons have been filed.
[7] Section 1332(d)(4) provides:
(4) A district court shall decline to exercise jurisdiction under paragraph (2)—
(A)(i) over a class action in which—
(I) greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed;
(II) at least 1 defendant is a defendant—
(aa) from whom significant relief is sought by members of the plaintiff class;
(bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and
(cc) who is a citizen of the State in which the action was originally filed; and
(III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed; and
(ii) during the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons; or
(B) two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.
[8] Section 1332(d)(7) provides in full:
(7) Citizenship of the members of the proposed plaintiff classes shall be determined for purposes of paragraphs (2) through (6) as of the date of filing of the complaint or amended complaint, or, if the case stated by the initial pleading is not subject to Federal jurisdiction, as of the date of service by plaintiffs of an amended pleading, motion, or other paper, indicating the existence of Federal jurisdiction.
[9] See, e.g., Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 459 (1980).
[10] See, e.g. Carden v. Arkoma Assocs., 494 U.S. 185, 197 (1990) (limited partnership).
[11] Section 1332(d)(10) provides:
(10) For purposes of this subsection and section 1453, an unincorporated association shall be deemed to be a citizen of the State where it has its principal place of business and the State under whose laws it is organized.
[12] Section 1332(d)(11)(A) provides:
(A) For purposes of this subsection and section 1453, a mass action shall be deemed to be a class action removable under paragraphs (2) through (10) if it otherwise meets the provisions of those paragraphs.
[13] Section 1332(d)(11)(B) provides:
(B)(i) As used in subparagraph (A), the term ‛mass action“ means any civil action (except a civil action within the scope of section 1711(2) [i.e., a class action]) in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs' claims involve common questions of law or fact, except that jurisdiction shall exist only over those plaintiffs whose claims in a mass action satisfy the jurisdictional amount requirements under subsection (a).
(ii) As used in subparagraph (A), the term ‛mass action“' shall not include any civil action in which —
(I) all of the claims in the action arise from an event or occurrence in the State in which the action was filed, and that allegedly resulted in injuries in that State or in States contiguous to that State;
(II) the claims are joined upon motion of a defendant;
(III) 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; or
(IV) the claims have been consolidated or coordinated solely for pretrial proceedings.
[14] Section 1332(d)(11)(C) provides:
(C)(i) Any action(s) removed to Federal court pursuant to this subsection shall not thereafter be transferred to any other court pursuant to section 1407, or the rules promulgated thereunder, unless a majority of the plaintiffs in the action request transfer pursuant to section 1407.
(ii) This subparagraph will not apply —
(I) to cases certified pursuant to rule 23 of the Federal Rules of Civil Procedure; or
(II) if plaintiffs propose that the action proceed as a class action pursuant to rule 23 of the Federal Rules of Civil Procedure.
[15] See, e.g., Olden v. LaFarge Corp., 383 F.3d 495 (6th Cir. 2004) (collecting cases).
[16] See, e.g., Trimble v. Asarco Inc., 232 F.3d 946, 962 (8th Cir. 2000) (collecting cases).
[17] Section 1332(d)(11)(D) provides:
(D) The limitations periods on any claims asserted in a mass action that is removed to Federal court pursuant to this subsection shall be deemed tolled during the period that the action is pending in Federal court.
[18] Section 1453(b) provides:
(b) IN GENERAL— A class action may be removed to a district court of the United States in accordance with section 1446 (except that the 1-year limitation under section 1446(b) shall not apply), without regard to whether any defendant is a citizen of the State in which the action is brought, except that such action may be removed by any defendant without the consent of all defendants.
[19] See, e.g., Parrino v. FHP, Inc., 146 F.3d 699, 703 (9th Cir.), cert. denied, 525 U.S. 1001 (1998).
[20] Section 1453(c) provides:
(c) REVIEW OF REMAND ORDERS—
(1) IN GENERAL- Section 1447 shall apply to any removal of a case under this section, except that notwithstanding section 1447(d), 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 if application is made to the court of appeals not less than 7 days after entry of the order.
(2) TIME PERIOD FOR JUDGMENT- If the court of appeals accepts an appeal under paragraph (1), the court shall complete all action on such appeal, including rendering judgment, not later than 60 days after the date on which such appeal was filed, unless an extension is granted under paragraph (3).
(3) EXTENSION OF TIME PERIOD- The court of appeals may grant an extension of the 60-day period described in paragraph (2) if—
(A) all parties to the proceeding agree to such extension, for any period of time; or
(B) such extension is for good cause shown and in the interests of justice, for a period not to exceed 10 days.
(4) DENIAL OF APPEAL- If a final judgment on the appeal under paragraph (1) is not issued before the end of the period described in paragraph (2), including any extension under paragraph (3), the appeal shall be denied.
[21] Section 1453(d) provides:
(d) EXCEPTION— This section shall not apply to any class action that solely involves—
(1) aclaim concerning a covered security as defined under section 16(f)(3) of the Securities Act of 1933 (15 U.S.C. 78p(f)(3)) and section 28(f)(5)(E) of the Securities Exchange Act of 1934 (15 U.S.C. 78bb(f)(5)(E));
(2) a claim that relates to the internal affairs or governance of a corporation or other form of business enterprise and arises under or by virtue of the laws of the State in which such corporation or business enterprise is incorporated or organized; or
(3) a claim that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security (as defined under section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1)) and the regulations issued thereunder).
[22] The text of § 1332(d)(11)(A) is set forth in note 11, supra
[23] Section 1715(a)(1) provides:
(1) APPROPRIATE FEDERAL OFFICIAL- In this section, the term ‛appropriate Federal official“ means—
(A) the Attorney General of the United States; or
(B) in any case in which the defendant is a Federal depository institution, a State depository institution, a depository institution holding company, a foreign bank, or a nondepository institution subsidiary of the foregoing (as such terms are defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)), the person who has the primary Federal regulatory or supervisory responsibility with respect to the defendant, if some or all of the matters alleged in the class action are subject to regulation or supervision by that person.
In the instance of federal depository institutions, there is a possibly redundant safe harbor providing that the federal official notice requirement is satisfied by serving the appropriate federal regulator. See § 1715(c)(1).
[24] Section 1715(a)(2) provides:
(2) APPROPRIATE STATE OFFICIAL- In this section, the term ‛appropriate State official“ means the person in the State who has the primary regulatory or supervisory responsibility with respect to the defendant, or who licenses or otherwise authorizes the defendant to conduct business in the State, if some or all of the matters alleged in the class action are subject to regulation by that person. If there is no primary regulator, supervisor, or licensing authority, or the matters alleged in the class action are not subject to regulation or supervision by that person, then the appropriate State official shall be the State attorney general.
In the instance of state depository institutions, there is a possibly redundant safe harbor providing that the state official notice requirement is satisfied by serving the appropriate state regulator. See § 1715(c)(2).
[25] Section 1715(e) provides:
(e) NONCOMPLIANCE IF NOTICE NOT PROVIDED—
(1) IN GENERAL— A class member may refuse to comply with and may choose not to be bound by a settlement agreement or consent decree in a class action if the class member demonstrates that the notice required under subsection (b) has not been provided.
(2) LIMITATION— A class member may not refuse to comply with or to be bound by a settlement agreement or consent decree under paragraph (1) if the notice required under subsection (b) was directed to the appropriate Federal official and to either the State attorney general or the person that has primary regulatory, supervisory, or licensing authority over the defendant.
[26] Section 1715(b) provides:
(b) IN GENERAL— Not later than 10 days after a proposed settlement of a class action is filed in court, each defendant that is participating in the proposed settlement shall serve upon the appropriate State official of each State in which a class member resides and the appropriate Federal official, a notice of the proposed settlement consisting of—
(1) a copy of the complaint and any materials filed with the complaint and any amended complaints (except such materials shall not be required to be served if such materials are made electronically available through the Internet and such service includes notice of how to electronically access such material);
(2) notice of any scheduled judicial hearing in the class action;
(3) any proposed or final notification to class members of—
(A)(i) the members' rights to request exclusion from the class action; or
(ii) if no right to request exclusion exists, a statement that no such right exists; and
(B) a proposed settlement of a class action;
(4) any proposed or final class action settlement;
(5) any settlement or other agreement contemporaneously made between class counsel and counsel for the defendants;
(6) any final judgment or notice of dismissal;
(7)(A) if feasible, the names of class members who reside in each State and the estimated proportionate share of the claims of such members to the entire settlement to that State's appropriate State official; or
(B) if the provision of information under subparagraph (A) is not feasible, a reasonable estimate of the number of class members residing in each State and the estimated proportionate share of the claims of such members to the entire settlement; and
(8) any written judicial opinion relating to the materials described under subparagraphs (3) through (6).
[27] Section 1715(d) provides:
(d) FINAL APPROVAL— An order giving final approval of a proposed settlement may not be issued earlier than 90 days after the later of the dates on which the appropriate Federal official and the appropriate State official are served with the notice required under subsection (b).
[28] Section 1715(e)(1) provides:
(1) IN GENERAL— A class member may refuse to comply with and may choose not to be bound by a settlement agreement or consent decree in a class action if the class member demonstrates that the notice required under subsection (b) has not been provided.
[29] Section 1715(e)(2) provides:
(2) LIMITATION— A class member may not refuse to comply with or to be bound by a settlement agreement or consent decree under paragraph (1) if the notice required under subsection (b) was directed to the appropriate Federal official and to either the State attorney general or the person that has primary regulatory, supervisory, or licensing authority over the defendant.
[30] Mastrovincenzo v. City of New York, 313 F. Supp. 2d 280, 289 (S.D.N.Y. April 7, 2004).
[31] In re Wireless Tel. Fed. Cost Recovery Fees Litig., No. 02-921-FJG, 2004 U.S. Dist. LEXIS 23342, at *11 (W.D. Mo. April 20, 2004) (‛This is not a ‘coupon’ settlement. Class members will not be required to purchase any additional services or items to receive a benefit or cash payment“).
[32] Section 1712(a) provides:
(a) CONTINGENT FEES IN COUPON SETTLEMENTS— If a proposed settlement in a class action provides for a recovery of coupons to a class member, the portion of any attorney's fee award to class counsel that is attributable to the award of the coupons shall be based on the value to class members of the coupons that are redeemed.
[33] Section 1712(b) provides:
(b) OTHER ATTORNEY'S FEE AWARDS IN COUPON SETTLEMENTS—
(1) IN GENERAL— If a proposed settlement in a class action provides for a recovery of coupons to class members, and a portion of the recovery of the coupons is not used to determine the attorney's fee to be paid to class counsel, any attorney's fee award shall be based upon the amount of time class counsel reasonably expended working on the action.
(2) COURT APPROVAL— Any attorney's fee under this subsection shall be subject to approval by the court and shall include an appropriate attorney's fee, if any, for obtaining equitable relief, including an injunction, if applicable. Nothing in this subsection shall be construed to prohibit application of a lodestar with a multiplier method of determining attorney's fees.
[34] Section 1712(c) provides:
(c) ATTORNEY'S FEE AWARDS CALCULATED ON A MIXED BASIS IN COUPON SETTLEMENTS— If a proposed settlement in a class action provides for an award of coupons to class members and also provides for equitable relief, including injunctive relief--
(1) that portion of the attorney's fee to be paid to class counsel that is based upon a portion of the recovery of the coupons shall be calculated in accordance with subsection (a); and
(2) that portion of the attorney's fee to be paid to class counsel that is not based upon a portion of the recovery of the coupons shall be calculated in accordance with subsection (b).
[35] Section 1712(e) provides:
(e) JUDICIAL SCRUTINY OF COUPON SETTLEMENTS- In a proposed settlement under which class members would be awarded coupons, the court may approve the proposed settlement only after a hearing to determine whether, and making a written finding that, the settlement is fair, reasonable, and adequate for class members. The court, in its discretion, may also require that a proposed settlement agreement provide for the distribution of a portion of the value of unclaimed coupons to 1 or more charitable or governmental organizations, as agreed to by the parties. The distribution and redemption of any proceeds under this subsection shall not be used to calculate attorneys' fees under this section.
[36] See, e.g., In re Compact Disc Minimum Advertised Price Antitrust Litig., 292 F. Supp. 2d 184, 189 (D. Me. 2003) (‛although I am satisfied that the coupon settlement has value to the class, I am not confident of the redemption rate that has been projected and thus of the settlement's total value. Therefore, I have determined to delay award of attorney fees until experience shows how many vouchers are exercised and thus how valuable the settlement really is“).
[37] Section 1712(d) provides:
(d) SETTLEMENT VALUATION EXPERTISE- In a class action involving the awarding of coupons, the court may, in its discretion upon the motion of a party, receive expert testimony from a witness qualified to provide information on the actual value to the class members of the coupons that are redeemed.
[38] Section 1713 provides:
The court may approve a proposed settlement under which any class member is obligated to pay sums to class counsel that would result in a net loss to the class member only if the court makes a written finding that nonmonetary benefits to the class member substantially outweigh the monetary loss.
[39] A. A. Sommer, Preempting Unintended Consequences, 60 Law & Contemp. Probs. 231, 231 (Summer 1997).
Share this article:
© 2024 Joseph Hage Aaronson LLC
Disclaimer | Attorney Advertising Notice | Legal Notice
