More than a year after its enactment, the Class Action Fairness Act has largely succeeded in forcing potentially costly class actions out of state courts and into federal courts—but procedural battles over keeping litigation in the federal system have made defending such cases more expensive, at least for the time being.
“CAFA has raised the cost to both plaintiffs and defendants by 10 to 30 percent, depending on the case and who’s involved,” says Anthony Rollo of the law firm McGlinchey Stafford. “Congress’ objective is being met in the sense that more class action suits are filed in federal court or going to be removed to federal court, but part of the transaction cost of that broad objective is the friction that comes from litigating each of these little jurisdictional provisions.”
Rollo
Courts have been deeply divided on many of the issues involving the initial stage of a class action—principally determining whether a suit can be removed to federal court and should stay there, says Rollo, who notes that such disputes drive up litigation costs. “For the first three to seven years, or until the law is clear, there’s going to be that greater expense,” he says. “Once the law is clear it will be more smooth, and without the transactional costs we’re seeing here at the front edge.”
Rollo says the statute may also be hurting settlements. “There’s a sense that some cases that could have been settled in the past cannot be settled economically” post-CAFA, Rollo says.
He notes that, in the past, many corporations agreed to so-called coupon settlements, where coupons were made available to consumers and plaintiff attorneys could collect large fees on the value of the coupons offered. It was seen an economical way to resolve a case without paying a lot of money, because relatively few consumers actually redeemed the coupons. But recent restrictions on coupon settlements in federal court have made that option much less attractive.
“A defendant may have to keep litigating a case to a conclusion or judgment, when cost of that litigation would exceed what a formerly appropriate settlement may have cost,” Rollo says.
‘Having An Impact’
Edward Waller, a lawyer with Fowler White Boggs Banker, notes that unlike many other federal laws, CAFA only addressed a select number of litigation issues, particularly national class action lawsuits handled by state courts. That objective, he says, is being achieved.
Waller
“One case we had was filed in state court in Illinois against a client here in Tampa,” Waller recalls. “Before CAFA, this particular lawsuit would have stayed in state court in Illinois. Because of CAFA, we were able to get it to federal court in Chicago.”
Brian Cabianca, a litigation partner with Squire, Sanders & Dempsey, says CAFA has resulted in fewer cases being filed in “magnet” states that attract many class action cases, but cautions that it is “still too soon to tell” whether CAFA is a complete success. “It’s definitely having an impact, but plaintiffs are fighting to have cases remanded,” he says.
One of the biggest issues being litigated is whether the defendant or the plaintiff has the burden of proving whether a case should stay in federal court or be remanded to state court. Historically, defendants have had to carry that burden.
“While this issue is not settled, the trend appears to be that defendants will continue to bear the burden of proof,” according to David Balser, litigation partner McKenna Long & Aldridge. “This makes the removal a significant battleground, including the introduction of evidence in support of removal petitions.”
Courts have also been deeply divided over when CAFA applies to lawsuits filed before the statute was enacted. CAFA applies to “any civil action commenced on or after the date of enactment.” But Congress did not define “commenced,” and considerable litigation has erupted over the question of whether an amendment to a complaint is the commencement of a new action.
Balser
Balser says the emerging trend is to analyze amendments on a “relation back” basis. “In other words, if an amendment relates back to the original pleading, the courts will likely treat the amendment as not commencing a new action under CAFA, which would entitle defendants to seek to remove the case to federal court,” he explains. “However, if an amendment converts a non-class action into a class action, adds different substantive claims for relief or adds a new defendant, the amendment may be treated as commencing a new action for CAFA removal purposes.”
Not All Bad For Plaintiffs
Although CAFA was trumpeted by the U.S. Chamber of Commerce and other pro-business groups as a major victory for Corporate America, “there’s a lot in the act that’s very good for plaintiffs,” says Paul Rheingold, a partner in the plaintiff law firm Rheingold, Valet, Rheingold, Shkolnik & McCartney.
Rheingold
Rheingold, who calls CAFA “almost a non-event,” says that although federal court historically was not perceived as a friendly venue for class action plaintiffs, CAFA has “spruced up” federal court for plaintiffs. He cites an end to the requirement that each plaintiff show a $75,000 minimum in losses as one example. “Federal court is now a more hospitable place for plaintiffs.”
And Rollo, who monitors class action filings, says there are indications that some plaintiffs are choosing to bring cases directly in federal court. “Some plaintiffs lawyers like federal court and, pre-CAFA, perhaps didn’t have a way to get there,” he says. “My sense is that there’s about 10 percent more lawsuits being filed in federal court under CAFA.”
Joseph Cohen, of Beirne Maynard and Parsons, says some plaintiffs’ lawyers—realizing the inevitability of having a case removed to federal court—may be trying to file in federal jurisdictions where the chance of getting a plaintiff-friendly judge is greater.
“In large metropolitan areas there are multiple judges and cases are randomly assigned, but in smaller areas there may only be one or two active judges,” he says. “So you’d have a 50 percent chance of getting Judge A rather than Judge B if you file there.”
No comments yet