Commercial Litigation and Arbitration

Class Action Fairness Act — Parens Patriae Action Brought on Behalf of All State Citizens pursuant to State Statute Falls within CAFA’s General Public Exception and Must be Remanded to State Court

State ex rel. Hood v. AU Optronics Corp., 2012 U.S. Dist. LEXIS 62089 (S.D. Miss. May 3, 2012):

On March 25, 2011, the State of Mississippi filed a complaint in the Chancery Court of Hinds County alleging that the defendants had engaged in price-fixing in violation of the Mississippi Consumer Protection Act ("MCPA"), Miss. Code § 75-24-1 et seq., and the Mississippi Antitrust Act ("MAA"), id. § 75-21-1 et seq. Docket No. 1-1.

The action was brought by the Attorney General of Mississippi, who sought to protect the State's "quasi-sovereign interest" in its economy and its citizens' economic well-being. Id. at 3. The State claimed that the number of citizens harmed by the defendants' conduct is "a sufficiently substantial segment of the State's population to establish Mississippi's quasi-sovereign interests, as relief is sought on behalf of all local governmental entities and consumers (not limited groups of private parties) who bought a wide range of price-fixed products." Id. at 4. With this and other language, the Attorney General invoked his authority to file suit as parens patriae on behalf of the State and its citizens. Id. at 3-4.

The defendants are companies that manufactured, marketed, sold, and/or distributed LCD panels, which are components of computers, televisions, and a wide variety of other electronic devices. Id. at 4-9. ***

On June 9, 2011, the defendants jointly removed the case to this Court. Docket No. 1. They asserted that federal jurisdiction was satisfied under the Class Action Fairness Act ("CAFA"), 28 U.S.C. §§ 1332(d) and 1453. Id. at 4. That law establishes federal jurisdiction over certain suits determined to be "class actions" or "mass actions." 28 U.S.C. § 1332(d). The defendants further asserted that a federal question existed pursuant to the Sherman Act, 15 U.S.C. § 7 et seq. Docket No. 1-1, at 10. ***

A. The Nature of These Actions

"The concept of parens patriae stems from the English constitutional system, where the King retained certain duties and powers, referred to as the 'royal prerogative,' which he exercised in his capacity as 'father of the country.'" Louisiana ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418, 425 (5th Cir. 2008) (citation omitted); see Alfred L. Snapp & Son, Inc. v. Puerto Rico, ex rel. Barez, 458 U.S. 592, 600-02 (1982). While the term originally meant the King's power to protect those without "the legal capacity to act for themselves," Caldwell, 536 F.3d at 425, in the United States parens patriae actions were "greatly expanded" over the 1900s, Hawaii v. Standard Oil Co. of Cal., 405 U.S. 251, 257 (1972) (collecting cases). Today they are "an increasingly popular vehicle for state attorneys general to vindicate the rights of their constituents." Alexander Lemann, Sheep in Wolves' Clothing: Removing Parens Patriae Suits Under the Class Action Fairness Act, 111 Colum. L. Rev. 121, 122 (2011).

Parens patriae actions are brought to protect a state's "quasi-sovereign interests," which include interests in "the health and well-being — both physical and economic — of its residents in general . . . [and] not being discriminatorily denied its rightful status within the federal system." Snapp, 458 U.S. at 607 (emphasis added). More specifically, quasi-sovereign interests have been held to include suits seeking to abate public nuisances, maintain access to energy sources, and halt price fixing. Id. at 604-06 (collecting cases).

There are boundaries on the parens patriae authority. "A State is not permitted to enter a controversy as a nominal party in order to forward the claims of individual citizens. But it may act as the representative of its citizens in original actions where the injury alleged affects the general population of a State in a substantial way." Maryland v. Louisiana, 451 U.S. 725, 737 (1981) (citations omitted). ***

There is a debate, both in our case and in the wider legal community, over whether parens patriae suits are class actions brought under a different label or sui generis. Parens patriae actions are certainly a form of representative action, and "attorneys general often hire plaintiffs' lawyers to help prosecute parens patriae suits. . . . [T]he conceptual similarity between [class actions and parens patriae actions] is unavoidable." Lemann, 111 Colum. L. Rev. at 133 (citations omitted).

That said, distinctions can be identified. For one, an attorney general is not a true class representative. "Rather, in representing the citizens, the State [through its Attorney General] acts more in the capacity of trustee representing beneficiaries or a lawyer representing clients, neither of which is the type of representation essential to the representational aspect of a class action." West Virginia ex rel. McGraw v. CVS Pharmacy, Inc., 646 F.3d 169, 176-77 (4th Cir. 2011); see LG Display Co. v. Madigan, 665 F.3d 768, 772 (7th Cir. 2011) ("This case was brought by the Attorney General, not by a representative of a class."). The Fourth Circuit has concluded that "[a]ll class actions are representative in nature; but not all representative actions are necessarily class actions." McGraw, 646 F.3d at 175 n.1.

There also are procedural differences between the two. See id. at 175-76; Madigan, 665 F.3d at 772. "Unlike private litigants, the Attorneys General have statutory authority to sue in parens patriae and need not demonstrate standing through a representative injury nor obtain certification of a class in order to recover on behalf of individuals." Washington v. Chimei Innolux Corp., 659 F.3d 842, 848 (9th Cir. 2011) (citations omitted). "Additionally, attorneys general are not always required to provide notice to the citizens whose damages they are recovering, and the citizens may not be able to opt out." Carswell, 78 U. Chi. L. Rev. at 362. Further, in some states a parens patriae suit may result in a recovery for the state's General Fund but not the individual victims of the fraud. Washington, 659 F.3d at 848.

The Fifth Circuit has found that a parens patriae suit may, in certain circumstances, constitute a CAFA mass action. Caldwell, 536 F.3d at 430. It has recited CAFA's legislative history to conclude that "the term 'class action' should be defined broadly to prevent 'jurisdictional gamesmanship.'" Id. at 424. But it has not held that parens patriae suits are necessarily class or mass actions. Id. at 430. ***

C. The Present Dispute

1. The Class Action Fairness Act

***To establish jurisdiction under CAFA, the removing party must first show that the parties are minimally diverse, which means that:

(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 and any defendant is a citizen of a State; or

(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.

28 U.S.C. § 1332(d)(2)(A)-(C). The removing party must then prove that the action is a class action or a mass action.

A CAFA class action is "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." Id. § 1332(d)(1)(B). A class action must have 100 or more "members of all proposed plaintiff classes" and an aggregate amount in controversy in excess of $5 million. Id. § 1332(d)(2), (d)(5)(B), and (d)(6).

CAFA defines a mass action as:

any civil 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).

Id. § 1332(d)(11)(B)(i). The jurisdictional amount requirement in 28 U.S.C. § 1332(a) is $75,000. Id. § 1332(a). Therefore, in a mass action, federal courts have jurisdiction "only" over plaintiffs whose individual claims exceed $75,000, exclusive of interest and costs. Id. § 1332(d)(a) and (d)(11)(B)(i). Mass actions may not be transferred to a multidistrict litigation court "unless a majority of the plaintiffs in the action request transfer." Id. § 1332(d)(11)(C)(I). ***

a. Minimal Diversity

The State of Mississippi is not a 'citizen' for purposes of diversity jurisdiction. In re Katrina Canal Litig. Breaches, 524 F.3d 700, 706 (5th Cir. 2008) ("Road Home"). In this situation, "a federal court must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy." Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 461 (1980) (citations omitted). The question is whether Mississippi's citizens and local governments are real parties in interest and must be counted for citizenship purposes.

***Here, the MCPA permits individuals to sue for damages incurred as a result of prohibited business practices. ***

These statutes afford local governments similar rights. ***

As a result, the State of Mississippi, its consumers, and its local governments are all real parties in interest in this action. While the State has no citizenship for purposes of diversity jurisdiction, Mississippi's consumers and local governments are obviously citizens of Mississippi. Counting their citizenship, and seeing that no defendant is a citizen of Mississippi, CAFA's requirement of minimal diversity has been met. See 28 U.S.C. § 1332(d)(2)(A).

b. Class Action

This suit is not a CAFA class action because it was not brought pursuant to Federal Rule of Civil Procedure 23 or a "similar State statute or rule of judicial procedure." Id. § 1332(d)(1)(B). ***

The conclusion that this suit is not a class action accords with rulings by the Fourth, Seventh, and Ninth Circuits. ***

c. Mass Action

Under Caldwell, this suit is a mass action. It is a civil 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." 28 U.S.C. § 1332(d)(11)(B)(i). Caldwell stands for the proposition that the words "persons" and "plaintiffs" in this sub-section are to be defined as "real parties in interest." Here, as there, this suit is a mass action because there are more than 100 real parties in interest that seek a joint trial on common questions of law or fact.


The State argues that a statutory exception requires remand. CAFA denies federal jurisdiction to any mass action in which "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." Id. § (d)(11)(B)(ii)(III). This will be referred to as the "general public exception."

Other courts have found the general public exception to exclude parens patriae suits from federal jurisdiction. See Madigan, 665 F.3d at 772 ("By the plain language of that provision, too, this case is not a mass action."); Connecticut v. Moody's Corp., No. 3:10-cv-546, 2011 WL 63905, at *4 (D. Conn. Jan. 5, 2011) ("Because the State is a real party in interest and sues to protect and vindicate the rights of its public in general under Conn. Gen. Stat. § 42-110m, this action is not a 'mass action.'"); see also South Carolina v. AU Optronics Corp., No. 3:11-cv-731, 2011 WL 4344079, at *7 (D.S.C. Sept. 14, 2011) (same). Several commentators also believe this exception applies to parens patriae suits. See Marcy Hogan Greer & Paul L. Peyronnin, The Class Action Fairness Act of 2005, in A Practitioner's Guide to Class Actions 241, 282 (Marcy Hogan Greer, ed. 2010) ("a mass action does not include state attorney general actions"); Peter M. Cummins, Parens Patriae Suits Filed by State AGs, For the Defense, Feb. 2008 ("CAFA similarly offers no hope to defendants in this situation because enforcement actions filed by State AGs are specifically excluded from the statute's coverage."); Catherine M. Sharkey, CAFA Settlement Notice Provision: Optimal Regulatory Policy?, 156 U. Pa. L. Rev. 1971, 1979 n.33 (2008) ("CAFA permits defendants to remove 'mass actions' (or class-action-like lawsuits) from state to federal court, but it contains an exception for parens patriae actions."); Antitrust Modernization Commission, Report and Recommendations 272 (2007) ("CAFA also does not apply to parens patriae actions by state attorneys general."); Gregory P. Joseph, Federal Class Action Jurisdiction After CAFA, Exxon Mobil and Grable, 8 Del. L. Rev. 157, 181 (2006).

i. "Claims . . . Asserted on Behalf of the General Public"

***[T]he complaint in our case alleges that the defendants, who control over 80% of the market for LCD panels, have substantially affected a product contained in laptops, desktop computer monitors, mobile phones, digital cameras, video cameras, televisions, motor vehicles, and other electronic devices commonly used and purchased in everyday life. Docket No. 1-1, at 4 and 17. United States census data shows that during the relevant time period, computers and mobile phones were present in more than half of America's households. Docket No. 1-1, at 4 n.1. The alleged price-fixing was so broad and pervasive as to affect the general public, and the State's claims in this suit are asserted on behalf of the general public. See TFT-LCD, 2011 WL 560593, at *5 ("In [*42] contrast to Comcast and Caldwell, where the States sued on behalf of limited groups of private parties (premium cable subscribers and insurance policyholders), here the States are suing on behalf of all consumers in their respective states who purchased a wide range of allegedly price-fixed products."). ***

ii. Pursuant to a "Statute Specifically Authorizing Such Action"

The second and final element of the general public exception is satisfied, as the claims in this action are brought under state statutes specifically authorizing these kinds of suits. ***

Having determined that this case is neither a class action nor a mass action that does not fall into a statutory exception, the case will be remanded to state court.

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