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April 11, 2005

Kirston Fortune, UT Law Communications, (512) 471.7330, or Professor Linda Mullenix, UT Law, (512) 232-1375.

Editor’s Note: Two columns on the Class Action Fairness Act are included below.

Class Actions: Impact of Class Action Fairness Law

By Linda S. Mullenix and Paul D. Rheingold
Published Thursday, March 3, 2005, in The New York Law Journal
Reprinted with the authors’ permission.

On Feb. 18, 2005 President Bush signed the Class Action Fairness Act of 2005 [S. 5 ES, 109th Cong., 1st Sess.]. The act represents one of the most sweeping legislative initiatives relating to class action litigation since amendment of Federal Rule of Civil Procedure 23 in 1966. The Senate had passed the Act by a vote of 72-26, and the House of Representatives by a vote of 279-149.

Versions of this legislation have been pending in Congress for several years. The House passed similar bills on several occasions, only to see the legislation languish in the Senate. After the November 2004 election, Congress acted quickly to enact the legislation when Republicans secured a Senate majority and House Republicans agreed to accept the Senate version.

This article examines the act's core provisions and discusses the implications for allocation of class litigation between federal and state courts. The article assesses the probable impact on class action practice and likely strategies that class action attorneys will now pursue. In a subsequent article, the authors discuss the act's implications for mass tort litigation.

The act is a complex statute that contains provisions addressing: [1] original federal court jurisdiction over class action lawsuits; [2] removal of state class actions into federal court; [3] class action settlements, including notice provisions; [4] interlocutory appeal of remand decisions; [5] other non-class "mass actions;" [6] reporting requirements; and [7] effective date.

The act applies to any civil action commenced on or after the date of its enactment. It is not retroactive and therefore has no applicability to class action pending or filed before Feb. 18, 2005.

Original Jurisdiction

The Act has incorrectly been characterized as a removal statute intended to move all state class actions into federal court. Primarily, the law essentially is a modification of federal statutes relating to federal court original diversity jurisdiction.

The act amends the federal diversity statute, 28 U.S.C. §[1332. It provides federal courts with original diversity jurisdiction over any class action when: [1] the aggregate amount in controversy exceeds $5 million [exclusive of interests and costs]; [2] the number of putative class members is at least 100; and [3] any class member is a citizen of a state or foreign country different than any defendant.

This amendment achieves two significant modifications of existing federal court diversity jurisdiction. First, the statute permits aggregation of class damages, effectively overruling the U.S. Supreme Court's non-aggregation decision in Zahn v. International Paper Co., 414 U.S. 291 [1973]. Second, the statute provides for "minimal diversity" among the parties, effectively eliminating the "complete diversity" requirement that exists for all other federal diversity cases. The net effect is to expand federal court jurisdiction for large scale, multistate class actions and to eliminate previous impediments to federal jurisdiction over such class actions.

The statute provides for both mandatory and discretionary exercise of federal jurisdiction for class actions that meet the threshold requirements of minimal diversity and $5 million aggregate damages.

Mandatory Jurisdiction

The statute creates two types of mandatory jurisdiction: circumstances when a court may not decline class action jurisdiction, and other circumstances when a court must decline jurisdiction. First, a federal court may not decline to exercise jurisdiction if one third or fewer of proposed class members are citizens of the state in which the plaintiffs filed the original action.

However, a federal court must decline to exercise jurisdiction: [1] if more than two-thirds of class members are citizens of the state in which the action was originally filed; [2] at least one defendant is a citizen of the state in which the action was originally filed, class members are seeking significant relief from this defendant, and the defendant's alleged conduct forms a significant basis for the plaintiffs' claims; [3] the principal injuries were incurred in the state where the action originally was filed; and [4] in three prior years, the same claimants have not asserted the same or similar claims against the defendants.

In addition, a federal court must decline jurisdiction if two thirds or more of class claimants, and the "primary" defendants, are citizens of the state in which the action originally was filed.

Discretionary Jurisdiction

The act vests discretion to decline federal court jurisdiction even when the proposed class action satisfies the minimal diversity and amount-in-controversy requirements. Thus, if greater than one-third but less than two-thirds of class members and the "primary defendants," are citizens of the state in which the case was filed, the court may decline jurisdiction. The court is to consider whether yielding jurisdiction would be "in the interests of justice" ... "looking at the totality of the circumstances."

Several factors are given to guide the evaluation, including whether: [1] the claims involve matters of national or interstate interest; [2] the claims will be governed by state law in which the action originally was filed, or by the laws of other states; [3] the plaintiffs have artfully pleaded the case to avoid federal jurisdiction; [4] the forum has a nexus with class members, the defendants, and the harms alleged; [5] whether the numbers of class members is substantially larger from the state in which the action was originally filed than from any other state, or whether claimants are dispersed among many states; and [6] during three years prior to filing the class action, one or more same or similar class actions were filed on behalf of the same or similar claimants.

Removal Procedures

The act works with the federal removal statutes to permit class actions filed in state court to be removed into federal court. The federal removal statutes are set forth generally at 28 U.S.C. §[§[1441 et seq. The act adds a new removal provision, 28 U.S.C. §[1453, that interacts with the existing removal provisions.

The new removal provisions modifies removal procedures in several respects. Existing diversity cases must be removed to federal court within one year, see 28 U.S.C. §[1446[b]. Under the act, class actions are exempt from this deadline. Under existing removal provisions, a case may not be removed if any defendant is a citizen of the state in which the action is brought.

The law modifies this restriction; class actions may be removed regardless of whether any defendant is a citizen of the state in which the class action was brought. Lastly, under existing removal procedures, all defendants must consent to a removal petition. The act eliminates this restriction; state class actions may be removed without the consent of all the defendants.

Interlocutory Appeal

Under the current removal statutes, an order remanding a case to state court is not reviewable, 28 U.S.C. §[1447[d]. The Class Action Fairness Act permits accelerated, discretionary review of a district court's order granting or denying a motion to remand in the class action. This appeal must be brought "not less than 7 days after entry of the order." The appellate courts have discretion to entertain the appeal; the statute does not provide standards for exercise of this discretion.

If an appellate court accepts discretionary review, it must complete its review no later than 60 days after the date the appeal was filed. However, if the parties agree, the appellate court may grant a 60-day extension, or a 10-day extension "for good cause shown and in the interests of justice."

Mass Actions

The Act contains provisions permitting removal for "mass actions" filed in state court. These are not special provisions for mass tort cases, despite the confusing label. Rather, these provisions are intended to encompass states such as Mississippi, which does not have a state class action rule, but permits massive joinder of claims under its state joinder rule. The act defines a mass action as "civil actions in which 100 or more plaintiffs bring suit jointly for monetary damages based on claims that involve common questions of law or fact."

These state joinder lawsuits are subject to the act's removal provisions. However, in "mass action" lawsuits, each plaintiff must individually satisfy the $75,000 amount-in-controversy requirement for jurisdiction under 28 U.S.C. §[1332[a].

Mass action cases will not include cases where [1] all claims arise in the filing state and any injuries were suffered in that state or a contiguous state; [2] the defendant joined the claims; [3] the claims are asserted on behalf of the public pursuant to a state statute; and [4] the claims have been consolidated solely for coordinated pretrial proceedings.

If the defendants remove a mass action to federal court, then the mass action may not be transferred to federal MDL proceedings unless a majority of plaintiffs request MDL treatment.

Settlements and Notice

The act's preamble sections recite the benefits of class action litigation as well as the burdens and abuses of class litigation. In order to curb the most egregious excesses of class settlements, the act includes provisions relating to settlements. For example, it provides that settlements may not pay larger awards to some class members because they live in closer proximity to the court where the litigation was filed.

Most prominently, it provides that in coupon settlements, the attorneys' fee award is to be based on the value to class members of coupons that class members actually redeemed. If a portion of a coupon settlement recovery is not used to determine fees, then the fee award is to be based on time that class counsel reasonably expended.

The legislation provides for new notice provisions. It requires that when a proposed settlement is filed in court, each defendant must notify the appropriate state and federal officials of each state in which class members reside of the proposed settlement. The notice must include information about the complaint, proposed settlement, class notice, proposed judgment, and names of class members [if feasible].

A federal court may not finally approve a class settlement earlier than 90 days after state and federal officials are notified. If notice to government officials is not provided, then a class member may choose not to be bound by any settlement agreement or consent decree.


At least some consequences of the Class Action Fairness Act are reasonably foreseeable. First, we are about to embark on at least a decade of collateral litigation arising from appellate review of remand orders. Because the statute does not provide standards for discretionary review, appellate courts will now embark on delineating such standards. This exercise probably will replicate the federal court experience in articulating standards for discretionary interlocutory review of class certification orders under Fed. R. Civ. P. 23[f] [amended in 1998].

Second, federal courts that do accept discretionary review of remand orders will now have to construe the often problematic language of the statutory provisions to determine whether federal jurisdiction was mandatory or discretionary. Appellate courts will now be enmeshed in thorny statutory construction problems, such as determining how many members comprise a proposed class [applying the difficult one-third and two-thirds formulas], as well as location of class members. Courts will have to parse new terms such as "primary defendants." This exercise will probably replicate the federal court experience with parsing Congress's supplement jurisdiction statute, 28 U.S.C. §[1367 [enacted in 1990, and still unsettled law]. Further, the courts will have to determine how "amount in controversy" is measured in terms of the $5 million threshold.

Despite all the media ballyhoo, most class actions will probably not be removed into federal court, because of the local carve-out exceptions. A recent study conducted by Mealey's Litigation Reporter validated this hypothesis. Studying state class actions in several states [both large and small] between 1997 and 2003, the study concluded that under the act's provisions, approximately 60 percent of class actions will remain in state courts, while 40 percent will be removable. Because of various securities litigation exceptions, the Delaware Chancery court will retain approximately 90 percent of its docket.

The act most likely will result in large-scale multistate and national class actions being removed into the federal system. Alternatively, the plaintiffs' bar may regroup and decide to file more class actions initially in federal courts, in plaintiff-friendly jurisdictions such as the U.S. Court of Appeals for the Second and Ninth circuits. Small-scale, localized class actions will remain in state court.

Finally, it is worthwhile noting the law of unintended consequences. When Congress enacted the Private Securities Reform Litigation Act in 1995, Congress intended to severely curb abusive shareholder and other securities litigation. Then, commentators predicted the death-knell of securities litigation. The experience of the PSLRA has been dramatically otherwise. Rather than curbing such litigation, federal courts have experienced a proliferation of its PSLRA docket.

Linda S. Mullenix holds the Morris and Rita Atlas Chair in Advocacy at the University of Texas School of Law. She is the author of State Class Actions: Practice and Procedure and the casebook, Mass Tort Litigation. Paul D. Rheingold is a partner in the New York law firm of Rheingold Valet Rheingold Shkolnik & McCartney.

Class Actions: Fairness Act’s Effect on Mass Torts

By Linda S. Mullenix and Paul D. Rheingold
Published Thursday, March 31, 2005, in The New York Law Journal
Reprinted with the authors’ permission.

In this column we consider how the Class Action Fairness Law, which we analyzed generally in a column on March 3, 2005, may apply to tort suits, with an emphasis on mass tort litigation. Our conclusion is that, although major sections of the new law are aimed at making rather sweeping changes in the handling of groups of tort cases, it may have little practical effect.

Three parts of the act deal with tort litigation. The first provides a means to remove a true class action from a state court to a federal court, under spelled-out requirements and limits. The second brings mass tort actions within the ambit of class actions for removal purposes, but also with numerous limitations. Third, if one considers a suits for economic loss ("coupon suits") as torts, these too are regulated.

Class Actions

As to the class action provisions, class actions started in state court, including those for tort, are removable under the minimal diversity requirement if the amount in controversy in the aggregate is $5 million or more. Such a provision will mean little to the parties in New York class actions, however, since the courts have refused to apply CPLR Article 9 to allow tort-based class actions.1

A number of states, however, have been amenable to certifying class actions for tort cases, sometimes for citizens of that state and sometimes creating a nationwide class actions. Some of these classes have been for personal injuries arising out of the use of or exposure to a common product, such as asbestos, tobacco, and pharmaceuticals (such as Baycol or OxyContin). Supporters of the new law saw as an abuse the practice of plaintiffs filing nationwide class actions in state courts after being denied such classes by federal courts. Under the new law, removal of these actions to the federal court will presumably lead to their dismissal again. (This result has already been achieved, in any case, by federal courts enjoining state court class actions under the All Writs Act.2)

A cause of action for medical monitoring (the creation of a fund to pay for periodic testing of persons exposed to a toxic substance) is a hybrid, involving aspects both of personal injury and of the creation of an equitable fund.3 Many states recognize a cause of action for medical monitoring, provided its requirements are met of course. These actions are usually only for citizens of that state, but some have been nationwide in scope, as for example the diet drug fen phen settlement. A limit under the act on removal might well apply to medical monitoring suits where both the defendant and the plaintiffs are citizens of the state. Therefore, an action brought based upon the conduct of a local polluter would not be removable, whereas one against a prescription drug manufacturer located in another state would be.

Mass Actions

The new definition of civil actions for which federal courts have original jurisdiction--and therefore removal jurisdiction exists--includes a "mass action," which is defined as one 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." As an aside, we make the comment that this language will lead to years of litigation.

Concentrating on the phrase "proposed to be tried jointly," the questions are who has proposed it and how has it been proposed to be done. Class actions by their inherent representative nature are one way to try the cases of all claimants together, but that is already covered in another section of the new law as discussed. Other procedural mechanisms by which 100 or more cases may be tried together are consolidation (as for example under state laws which track Federal Rules of Civil Procedure 42); joinder (as for example under state laws which track the Federal Rules 20); or special state rules, or just by court order.

Past experience in mass torts aggregations indicates that it is only rarely that a large number of cases have been brought together for trial purposes by either joinder or consolidation. These devices are not expansive enough to round up hundreds of cases.

However, it has been asserted that one of the abuses aimed at under the new law was the practice in Mississippi which allowed the joinder of claims for injuries from the same product under almost any condition. Plaintiffs living in various venues in that state could sue an out of state defendant in the county of their choice even if their claims had little in common. But to the extent this situation was abuse, it had been largely terminated before the act went into effect. The Supreme Court of Mississippi had changed its official comments for the joinder procedure to require a "distinct litigatable vent linking the parties" and on that basis had ordered the severance of cases of such recent mass torts as Propulsid and fen phen diet pills.4

Mississippi practice aside, we are aware of very few state court mass tort actions which have been tried jointly. More often they are prepared jointly and then tried one by one or in small groups. The new law makes it clear that the mere coordination of cases for preparation purposes, which is common in states which see much mass tort litigation such as California, New York, New Jersey or Pennsylvania, does not make the cases removable.

As to who may propose the joint trial, the new law has a clause which prohibits the defendant(s) from making such a motion. And, assuming that the plaintiffs would not so move (after all they filed their cases in state court to begin with), this leaves the court sua sponte to so move, although nowhere is that stated explicitly in the law. Thus one can hypothesize a situation where a state court judge finds herself overwhelmed by a hundred or more cases involving the same product filed in her court. Could she divest herself of this load by proposing that the cases be tried jointly (to track the words of the new law)?

A further issue arises if a state judge sua sponte declares that he will try all of the cases jointly. If the judge professes to take this step under a procedural rule which is misapplied, or if he merely enters such an order without premising it on any recognized procedural device, what remedy would the plaintiffs have? Normally they might take an appeal from such an order, but the defendant would be expected to move quickly to attempt to remove the case to federal court under the new law. If removed, the plaintiffs might seek to remand on the basis that no procedure exists to support the order of joint trial.

There are other limits on the removal of mass actions. The law does not apply to individual cases which do not seek the current federal jurisdictional minimum of $75,000. Nor would it apply to civil actions commenced before the law went into effect on Feb. 18, 2005. Hence, using as an example the Vioxx cases pending in state court in New Jersey, even assuming they were removable, one would need 100 new cases, seeking damages of $75,000 or greater. Another major limitation on the new law is that it does not apply to claims arising out of an event in the state which result in injuries in that state or ones contiguous to it. Thus, a local pollution disaster case would not be removable.

If a mass tort action is removed from a statewide coordination to the district court, it is not clear to which district within a state it will be removed where there are multiple districts. And there is a strange provision in the law which says that even if all of the cases in the federal system have been assigned to one judge under multi-district litigation provisions (28 USC sec.1407), which is a common development, the ones involving the same product which are removed under the new law are not to be transferred from the district court where they were taken to the multi-district litigation proceeding, unless a majority of the plaintiffs so demand. If they did not, there would be two federal proceedings going over the same ground.

There is no provision in the act for the situation of a new personal injury case being filed after an initial batch has been removed. It appears that one could still file in the state court, if there was a tactical advantage (such as to get the law of that state to apply), but that the defendant could remove it without another 100 accumulating.

There is also no provision in the new law as to what the federal judge is to do after the batch of mass tort cases have been removed to its court, and the same is true for a removed class action or one of permissive joinder as had been the situation in Mississippi. It would seem that the court would be free to handle the litigation as it chose. It could decide, for example, to try to the cases individually, in waves or however it wanted. There might even be a potential for remand, since the law has a strange provision in it that for the time when the cases are removed, the statute of limitations is tolled.

'Coupon Settlements'

Suits for economic damages, such as return of the price paid for a product, might under a broad sense be considered tort based, especially if they are premised on a misrepresentation cause of action. An oft perceived abuse in this type of litigation is that attorneys; fees for the class work involved is computed on the theoretical full value of the settlement, as measured by the potential maximum cost to the defendant.

In practical experience, however, many class members do not step forward and claim their benefit, especially if the settlement involves a coupon allowing money off the purchase price of a product. The new law seeks to control fees under these circumstances by limiting the fees to the actual value of the redeemed coupons or to use an hourly rate for the time counsel has spent.

In conclusion, how much use will be made of the new act in the field of tort litigation? Where a state court class action has been filed, especially after a federal one involving the same product has been denied, predictably it will be almost inevitably used. That is that the new act was primarily aimed at.

Realizing that, plaintiffs may be inhibited from even trying--producing the same result as far as defendants go. As to the use in "mass torts" as defined separately from class actions, time will tell about how often it will be used., but it would seem that the new law will not have a great amount of use. Indeed, knowing the inventiveness of the plaintiffs' bar, another law may come into play: the law of unintended consequences.

1. See Rheingold, Mass Tort Litigation (Thomson West 1996 with annual supplements), sec. 3:102; Mullenix, State Class Actions: Practice and Procedure (CCH 2002 with annual supplements); Mullenix, Mass Tort Litigation (West 1996)

2. Rheingold, supra, sec. 5:10.

3. Rheingold, supra, sec. 12:2

4. Wyeth-Ayerst v. Caldwell, Miss., 2003-IA-01390-SCT 1/27/05

Paul D. Rheingold is a partner in Rheingold Valet Rheingold Shkolnik & McCartney. Linda S. Mullenix holds the Morris and Rita Atlas chair in advocacy at the University of Texas School of Law.

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