Class
action law raises jurisdictional issues
By
April Rockstead Barker
Wisconsin Law Journal
March
23, 2005
Many
Wisconsin legal observers familiar with the federal Class Action Fairness Act
of 2005 seem to agree that it is likely to divert some class actions from state
courts into federal courts.
But
recent interviews reveal a divide in their assessments of whether that would be
a generally positive development, and if so, for whom.
Bernard
T. McCartan, who is associate general counsel for American Family Mutual Insurance
Company in Madison and manages its Wisconsin regional legal department, said that
the new law should help address variances in the application of state laws and
in state judges' approaches to class action suits.
"My
sense of it is that the act is going to bring more consistency to that area of
litigation, which I think is a good thing," he said.
Possible
Effects on Substantive Law
Others
believe that by sending more class actions to federal court, the act could retard
progress in areas of state law and ultimately deprive some plaintiffs of redress
for wrongs.
Because
the act expands federal diversity jurisdiction over class actions, federal courts
are likely to see more class cases that concern questions of state law, whether
the cases are filed in federal court originally or removed there by defendants.
According
to Scott Moss, an assistant professor at Marquette University Law School who teaches
a seminar on class actions, federal courts are often more timid in applying state
law because when they do, federal judges view themselves as interpreting somebody
else's law.
"So
federal courts are often much less likely to want to go out on a limb and allow
a claim that is a close call under state law," he said. "If it's a close
call on an unsettled question of state law — that is, if there isn't much
precedent under the state law — then the federal court may decline to hear
the case on the premise that federal courts shouldn't be issuing cutting-edge
state law decisions."
Yet,
in some areas of law, such as consumer fraud, class actions are virtually the
only cases that produce reported decisions, Moss said.
If
all of the decisions in an area of state law are issued by federal courts, that
could stunt the development of that field of law, he said.
Procedural
Requirements Differ
Although
more class actions may go to federal court, fewer may survive there, according
to Steve Meili, a clinical associate professor at the University of Wisconsin
Law School and the director of its Consumer Law Litigation Clinic.
"Because
of the heightened procedural requirements in federal court generally, it's likely
that more class actions will be dismissed for various reasons in federal court
than is currently the case in state court," he said. "So it may be more
difficult for consumers or other plaintiffs in class actions to obtain relief."
William
P. Dixon, who represents class action plaintiffs in his practice as a partner
at Miner, Barnhill & Galland PC, said that while the act will in most cases
have little effect on class action practice in Wisconsin, it poses a danger to
plaintiffs in consumer class action lawsuits.
Federal
courts may refuse to hear removed consumer class action cases in which many different
states' laws must be applied, citing manageability problems, he said.
Under
the act, such cases apparently wouldn't be able to be returned to state courts,
Dixon said.
Individual
plaintiffs may not have any effective recourse in that situation, he said, because
their claims could be too small to justify the costs of independent litigation.
"Consumers
are at risk under this until it gets figured out by the courts," Dixon said,
"because the courts know this isn't going to work, and they're going to have
to be creative in how to deal with it."
Jurisdictional
Jockeying Foreseen
But
Josh Johanningmeier, a member of the litigation team at LaFollette Godfrey &
Kahn, who primarily represents manufacturers, distributors and retailers and who,
along with his firm, represents several class action defendants in cases pending
in Wisconsin, said that while the act may result in fewer classes certified under
the more rigorous federal rules, it is possible that plaintiffs' attorneys will
try to plead cases so that they cannot be removed to federal court.
The
act contains provisions that either require or permit a court to decline jurisdiction
under certain conditions, depending on what fraction of the members of all of
the proposed plaintiff classes are citizens of the state in which the action was
originally filed and various other factors.
Individual
plaintiffs' claims are unlikely to fall through the cracks under the terms of
the act, Johanningmeier said.
"There
will either be a class action in federal court under the new jurisdiction or there
will be single-state class actions available to them," he said.
Meili
said that the act is likely to significantly increase litigation about jurisdictional
issues in class actions.
"One
can easily foresee many battles about exactly what percentage of the putative
class members are from the forum state," he said.
Forum
Shopping a Concern
The
act could help ensure that large numbers of claims are not as frequently litigated
in state jurisdictions known as havens for class actions, Johanningmeier said.
"That
type of forum shopping is going to be much tougher now, because you won't be able
to bring in 50,000 class members nationwide," he said.
There
is a sense that certain "hot spots" are out of control, said Moss, who
represented employees in individual and class litigation in practice prior to
joining the faculty at Marquette.
"But
I can name hot spots in the federal judiciary that are, in my view, absurdly anti-plaintiff,"
he said. "So it's pick your poison."
Meili
said that he believes that the new law will deter some meritorious class actions
that otherwise might have been brought. As a result, he said, the act may impair
one of the traditional strengths of state class actions: the deterrent effect
that exists when companies know that if a class action is certified and it succeeds,
they may have substantial exposure.
"If
that deterrent is no longer present or is significantly weakened, I think it will
certainly have an impact on their practices and how they deal with consumers and
others who may be affected by their conduct," he said.
Speed
at Issue
Class
actions may proceed more slowly in federal courts because of clogged federal dockets,
Dixon said.
"It
takes much longer to get a lawsuit litigated usually in federal court, with the
exception of [the Western District of Wisconsin], where they move things right
along," he said.
Battles
of attrition in litigation generally favor defendants, Moss said.
"The
more litigation costs, and the longer it takes, the more plaintiffs will settle
on the cheap," he said. "And defendants know that."
But
Johanningmeier said that he believes that litigants in Wisconsin will see their
cases handled very efficiently.
"I
really think that federal courts around the country, and in particular here in
Wisconsin, will handle this quite well," he said.
Settlements
Scrutinized
Other
provisions in the act, such as those that require notice of proposed class action
settlements to certain government officials and which concern plaintiffs' attorneys'
fees in cases involving coupon settlements, address problems that have not surfaced
in Wisconsin courts, according to Dixon.
"Judges
are honest in Wisconsin," he said. "Judges keep these cases under control.
"All
settlements, even coupon settlements, have to be approved by a judge. That was
the law before this bill, and it's the law after this bill."
Likewise,
a provision that governs approval of proposed settlements under which class members
would sustain net monetary losses after paying attorneys' fees mirrors existing
law, Moss said, because judges already have to scrutinize any class settlement
to make sure that it is fair to class members.
"On
the one hand, this only requires courts to scrutinize settlements they already
had to scrutinize," he said. "On the other hand, I imagine judges scrutinizing
settlements will keep in mind that this is an expression of Congress' intent that
they apply a more searching scrutiny to certain kinds of settlements, like ones
that cost the class members money or that involve coupons."
