Commercial Litigation and Arbitration

Class Action Fairness Act Jurisdiction — Circuit Split as to How to Determine Whether a State Is a Real Party in Interest in a Parens Patriae Action — Claim-by-Claim vs. Wholesale Approach to Reading Complaint

Myinfoguard v. Sorrell, 2012 U.S. Dist. LEXIS 161070 (D. Vt. Nov. 9, 2012):

With respect to both section 1332(a) and CAFA, federal courts are in general agreement that "a crucial distinction must be made between a plaintiff who sues solely in his capacity as an agent, on the one hand, and, on the other, a plaintiff who sues not only as an agent, but also as an individual who has his own stake in the litigation." Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 194 (2d Cir. 2003) (emphasis added). However, there is a circuit split regarding the approach courts should apply when determining whether a State is a real party in interest in a parens patriae action. The Fifth Circuit has adopted a "claim-by-claim" analysis, which despite its name actually requires a court to consider whether a party will benefit from each form of relief requested. See Louisiana ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418, 430 (5th Cir. 2008). The Fourth, Seventh, and Ninth Circuits, on the other hand, apply a wholesale approach, which requires consideration of the complaint in its entirety. See AU Optronics Corp. v. South Carolina, No. 11-254, 11-255, 2012 WL 5265799 at *6 (4th Cir. Oct. 25, 2012); LG Display Co., Ltd. v. Madigan, 665 F.3d 768, 773 (7th Cir. 2011); Nevada v. Bank of Am. Corp., 672 F.3d 661, 671 (9th Cir. 2012).

Footnote 4. The Second Circuit has yet to decide this question, but a district court in Connecticut has joined the Fourth, Seventh, and Ninth Circuits in applying the wholesale approach. See; Connecticut v. Moody's Corp., No. 10-CV-546, 2011 WL 63905 at *3-4 (D. Conn. Jan. 5, 2011).

This disagreement stems in part from the relatively recent adoption of CAFA, which Congress enacted to expand the scope of class actions that would be litigated in federal court and thereby prevent class-action plaintiffs from forum-shopping. See generally Dwight R. Carswell, Comment, CAFA and Parens Patriae Actions, 78 U. Chi. L. Rev. 345, 349-53 (2011).

This Court adopts the wholesale approach. Although the enactment of CAFA was meant to expand federal court jurisdiction over class actions, it does not follow that "federal courts are required to deviate from the traditional 'whole complaint' analysis when evaluating whether a State is the real party in interest in a parens patriae case." LG Display Co., Ltd., 665 F.3d at 776-77 (quoting In re TFT-LCD (Flat Panel) Antitrust Litig, No. C 07-1927, 2011 WL 560593 (N.D. Cal. Feb. 15, 2011)); see also Ford Motor Co. v. Dep't of Treasury of State of Indiana, 323 U.S. 459, 464, (1945) ("[T]he nature of a suit as one against the state is to be determined by the essential nature and effect of the proceeding.") overruled on other grounds by Lapides v. Bd. of Regents of the Univ. Sys. of Ga., 535 U.S. 613 (2002). Indeed, the Supreme Court has counseled that restraint is particularly suitable in the removal context in light of its longstanding policy of strictly construing the statutory procedures for removal (see Syngenta Crop Protection, Inc. v. Henson, 537 U.S. 28, 32 (2002)), as well as the sovereignty concerns raised by asserting federal jurisdiction over cases brought by states in their own courts. See Franchise Tax. Bd. V. Constr. Laborers Vacation Trust, 463 U.S. 1, 21 n.22 (1983) ("[C]onsiderations of comity make us reluctant to snatch cases which a State has brought [*17] from the courts of that State, unless some clear rule demands it.").

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