Tag Archives: Class Action Fairness Act (CAFA)

Congress Considering Major Class Action Reform Legislation

View Adam Doerr's Complete Bio at robinsonbradshaw.comRep. Bob Goodlatte (R-Va.), the Chairman of the House Judiciary Committee, recently introduced a bill that would make significant changes to federal class action litigation. The Fairness in Class Action Litigation Act of 2017 (H.R. 985) states that it is intended to allow prompt recoveries to plaintiffs with legitimate claims and “diminish abuses in class action and mass tort litigation that are undermining the integrity of the U.S. legal system.”

In its current form, the draft bill would likely eclipse the 2005 passage of the Class Action Fairness Act as the most significant legislation on class actions in decades. Rep. Goodlatte has introduced similar legislation in previous years, but passage is considerably enhanced with unified Republican control of the House, Senate, and Presidency. Among other changes, the bill would enact the following:

  • Prevent certification of a class seeking monetary relief unless the plaintiff “affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative or representatives.” (§ 1716) In other words, classes could not include individuals who have not suffered damage, or where damage is not yet clear.
  • Require class counsel to describe how the named plaintiff agreed to be included in the complaint, identify any other class action where the named plaintiff had a similar role, and disclose any family or employment relationship between class counsel and the named plaintiff (in which case certification must be denied). (§ 1717)
  • Require the party seeking certification to show a “reliable and administratively feasible mechanism” for (a) determining whether class members fall within the class definition and (b) distributing monetary relief to “a substantial majority of class members.” (§ 1718(a)). This provision appears to be an effort to impose a formal ascertainability requirement on class certification, as the Fourth Circuit has done in some cases.
  • Make significant changes to attorneys’ fees, including (1) preventing any payment or even determination of fees to class counsel until the distribution of monetary recovery to class members is complete, (2) limiting fee awards to “a reasonable percentage of any payments directly distributed to and received by class members,” and (3) limiting the payment of attorney’s fees based on equitable relief to “a reasonable percentage of the value of the equitable relief.” (§ 1718(b)).
  • Require courts to report, and the Federal Judicial Center to track, disbursements to class members. The Federal Judicial Center would prepare an annual report summarizing how funds paid by defendants in class actions have been distributed, including the largest and smallest amounts paid to any class member and payments to class counsel. (§ 1719) Alison Frankel of Reuters, who writes often and well on class actions, referred to this as “most intriguing idea in House Republicans’ bill to gut class actions.”
  • Bar certification of issue classes (§ 1720), an issue we have previously covered in both a district court case regarding the relationship between predominance and issue certification and when the Supreme Court declined to resolve a circuit split over issue certification.
  • Stay discovery while preliminary motions are pending. (§ 1721) (Interestingly, this provision formally recognizes a “motion to strike class allegations,” a motion that is not currently listed by name under Rule 23, although such motions may be permitted under Rule 23(d)(1)(D), which allows the Court to enter an order to “require that the pleadings be amended to eliminate allegations about representation of absent persons.”)
  • Provide for appellate review of orders granting or denying class certification as a matter of right. (§ 1722) This would be a significant departure from current practice under Rule 23(f), which gives Courts of Appeal substantial discretion in deciding whether to permit such interlocutory appeals.

The bill would also allow more personal injury cases to stay in federal court by changing the diversity jurisdiction analysis in multiple plaintiff cases, and it would make significant changes to multidistrict litigation practice, including barring the transferee judge from conducting a trial unless all parties consent.

The draft legislation is already generating controversy, and this will significantly increase as it advances. In particular, basing attorney’s fee awards on a percentage of the “value of the equitable relief” will be hotly debated. Equitable relief is, by nature, difficult or impossible to value in financial terms. The Washington Lawyers’ Committee for Civil Rights has already registered its opposition, noting the difficulty of putting a value on a class relief protecting disabled individuals from abusive conditions or providing them access to treatment, transportation, and community services.

The bill was introduced on February 9. On February 15, following a series of failed attempts by Democrats to introduce amendments, the Judiciary Committee voted on party lines (19-12) to forward to the bill to the full House. We’ll continue to track this legislation and bring you significant updates.

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Fourth Circuit Holds that Court, Not Arbitrators, Decides Whether Arbitration Agreement Provides for Class Arbitration

View David Wright's Complete Bio at robinsonbradshaw.comCharacterizing an unpublished 2007 decision to the contrary as a “thin reed” displaced by later Supreme Court guidance, the Fourth Circuit held that the question of whether an arbitration agreement permits class proceedings is a “gateway” issue for the court, and not a procedural question left to the arbitrator to decide. Del Webb Communities, Inc. v. Carlson, No. 15-1385 (4th Cir. March 28, 2016). The case was filed after a builder – facing numerous construction defect claims and an arbitrator’s decision whether to certify those claims as a class proceeding – filed a petition to compel “bilateral arbitration” under the Federal Arbitration Act. The district court found that the decision whether to conduct class arbitration was a threshold question for the arbitrator. A unanimous Fourth Circuit panel disagreed.

After dealing with some jurisdictional issues – including CAFA jurisdiction and the Rooker-Feldman doctrine – the Court found that, although the Supreme Court had not decided the question, the high court’s adumbrations provided strong guidance on the subject. Writing for the panel, Judge Diaz concluded that a decision concerning “class arbitration” was tantamount to a question concerning arbitrability, which placed the issue squarely within the province of the judiciary under prevailing authority. In Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010), the Supreme Court had held that a party cannot be forced to arbitrate on a class-wide basis absent “a contractual basis for concluding that the party agreed to do so.” But the Court didn’t decide in that case who (the Court or the arbitrator) determined whether this “contractual basis” existed. The Fourth Circuit, agreeing with other Circuits on the question, observed that there was a world of difference between assuming the risk of an error in a bilateral arbitration agreement and accepting such a risk in a class arbitration proceeding. The Court viewed this question as tantamount to a decision on the scope of arbitration, which is a question reserved for the court unless the parties have clearly and unmistakably provided to the contrary.

Never mentioned by the Court in its decision is a line of cases holding that when the parties adopt the AAA rules in their contract, they have “clearly and unmistakably” committed the issue of arbitrability to the arbitrator. In Del Webb, the parties had selected the AAA Construction Arbitration Rules, and Rule R-9 of those rules expressly provides that “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” In a recent North Carolina Business Court decision, Judge Bledsoe – citing numerous federal district and circuit court opinions on the subject – held that the adoption of the AAA rules in the parties’ contract “clearly and unmistakably” committed the issue of the arbitrability of a claim to the arbitrator. But Judge Bledsoe’s case did not involve class arbitration, and it is clear that the Fourth Circuit was not about to give final say to an arbitrator concerning certification of a putative class unless every party to the contract had clearly signed off on that proposition.

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Notice of Removal: Short and Plain Statement, Not Proof of Jurisdictional Facts, Required

View Sinéad O’Doherty’s Complete Bio at RBH.comLast May, we introduced you to the Dart Cherokee Basin Operating Co., LLC v. Owens case and the interesting possibilities it presented for Supreme Court review. On Monday, a divided Supreme Court issued its decision in this matter, and it did not disappoint. To briefly recap, this case arose from the attempted removal of a putative class action to federal court under the Class Action Fairness Act (the “CAFA”). In their notice of removal, the defendants (collectively, “Dart Cherokee”) asserted that the amount in controversy was $8.2 million, satisfying CAFA’s $5 million threshold. The plaintiff, Brandon Owens, sought to remand the case on the grounds that the removal notice was legally defective because it did not contain admissible evidence proving that the amount in controversy had been met. In response to Owens’ remand motion, Dart Cherokee provided an affidavit supporting its damages calculation. Relying on Tenth Circuit precedent and the “presumption” against removal, the district court remanded the case to state court. Dart Cherokee sought leave to appeal the remand order to the Tenth Circuit. See 28 U.S.C. § 1453(c)(1) (providing that “a court of appeals may accept an appeal from an order of a district court granting or denying a motion to remand a class action”). After a divided Tenth Circuit denied Dart Cherokee’s request for appellate review, the Supreme Court granted certiorari to determine if a notice of removal must include jurisdictional evidence.

The Supreme Court quickly disposed of this question: “The answer, we hold, is supplied by the removal statute itself. A statement ‘short and plain’ need not contain evidentiary submissions.” Dart Cherokee Basin Operating Co. v. Owens, No. 13-719, slip op. at 2, 574 U.S. ___ (2014). In reaching this conclusion, the Supreme Court noted that the removal statute tracks the pleading requirements of Federal Rule of Civil Procedure 8(a) and emphasized that the “notice of removal need include only a plausible allegation that the amount in controversy exceeds the jurisdictional threshold,” Dart Cherokee, slip op. at 7. As for the district court’s reliance on the “purported ‘presumption’ against removal,” the Supreme Court concluded, “[i]t suffices to point out that no antiremoval presumption attends cases invoking CAFA.” Id. In so ruling, the Supreme Court has brought some clarity to the removal process under CAFA.


If you are one of our readers who enjoys more esoteric issues, you’ll want to keep reading. The Dart Cherokee case provoked two dissenting opinions, but the dissenting justices appear to agree with the majority’s answer to the question of whether jurisdictional evidence is required with a notice of removal. See Dart Cherokee, slip op. at 1-2 (Scalia, J., dissenting) (“Eager to correct what we suspected was the District Court’s (and the Tenth Circuit’s) erroneous interpretation of § 1446(a), we granted certiorari to decide whether notices of removal must contain evidence supporting federal jurisdiction.”). Where the justices split, however, was on the propriety of reviewing the merits of an order remanding a class action to state court when the court of appeals denies leave to appeal under Section 1453(c)(1). In last year’s Standard Fire Insurance Co. v. Knowles decision, a unanimous Supreme Court considered the merits of a case in precisely that procedural posture: the Eighth Circuit had denied a defendant’s request for leave to appeal a remand order under Section 1453(c)(1). Unlike in Knowles, an amicus brief in this case argued that because Section 1453(c)(1) provides for discretionary appellate review, the only issue before the Supreme Court was whether the Tenth Circuit abused its discretion in denying Dart Cherokee’s leave-to-appeal application. The dissenting justices agreed with this argument and concluded that, because they could not determine the reasons why the Tenth Circuit denied Dart Cherokee’s request, the case should have been dismissed as improvidently granted. Failing that, most of the dissenting justices would have affirmed the Tenth Circuit’s ruling. Justice Thomas, however, would have dismissed the case for lack of jurisdiction under 28 U.S.C. § 1254. According to Justice Thomas, because the Tenth Circuit denied Dart Cherokee’s application for leave to appeal, “no ‘case’ ever arrived ‘in the court of appeals’” for the Supreme Court to review. Dart Cherokee, slip op. at 2 (Thomas, J., dissenting). By contrast, the majority concluded that jurisdiction was proper under Section 1254, explaining, “The case was ‘in’ the Court of Appeals because of Dart’s leave-to-appeal application, and we have jurisdiction to review what the Court of Appeals did with that application.” Id. at 8 (majority opinion). The majority further concluded that, “[f]rom all signals one can discern…, the Tenth Circuit’s denial of Dart ’s request for review of the remand order was infected by legal error.” Id. at 11. In the majority’s opinion, whether the Tenth Circuit erred in denying review and whether the district court erred in remanding the case “depends on the answer to the very same question: What must the removal notice contain?” Id. at 13.

Given this division among the justices, it will be interesting to see how the Supreme Court resolves the next case where a defendant seeks review of a remand order after the Court of Appeals denies leave to appeal under Section 1453(c)(1).

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Jurisdiction is Just the First Challenge for Fraud-Based State-Law Class Action in Federal Court

View Sinéad O’Doherty’s Complete Bio at RBH.comThe recently filed case of Adesina v. ACN, Inc. (W.D.N.C. Oct. 10, 2014) illustrates both the possibilities and the problems associated with federal litigation of putative class actions arising under state law. Prior to the adoption of the Class Action Fairness Act of 2005 (the “CAFA”), parties seeking a federal forum often had difficulty meeting the “amount in controversy” requirement in class actions brought under diversity jurisdiction. See Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546 (2005) (concluding that a least one plaintiff must satisfy the jurisdictional amount). Under CAFA, however, federal jurisdiction exists in a class action if any member of the class is diverse from any defendant and the aggregate amount in controversy exceeds $5 million. See 28 U.S.C. § 1332(d).

In Adesina, a Maryland resident brought a putative class action against two North Carolina companies, ACN, Inc. and XOOM Energy, LLC, on behalf of residents in eighteen states. (Interestingly, even though the defendants are local, the purported class does not include North Carolinians.) The complaint maintains that there are more than 100 class members who are diverse from the defendants and whose aggregate damages exceed $5 million. This seems enough to check the CAFA jurisdiction box.

But CAFA only gets you into federal court, and then Federal Rule of Civil Procedure 23 governs whether a class may in fact proceed. Claiming that the defendants are engaged in a “fraudulent and deceptive bait-and-switch sales model,” the complaint asserts a variety of fraud-based claims, including violation of the North Carolina Unfair and Deceptive Trade Practices Act. And although pleading a multiplicity of state-law claims, the complaint appears to rest in large part upon ostensibly misleading statements that sales agents are making in the field to try to get customers to switch providers. Yet Fourth Circuit precedent is clear that generally “the reliance element of . . . fraud and negligent misrepresentation claims [is] not readily susceptible to class-wide proof” and “proof of reasonable reliance . . . depend[s] upon a fact-intensive inquiry into what information each [class member] actually had.” Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331, 341 (4th Cir. 1998). If that weren’t challenging enough, the Fourth Circuit has already indicated that class claims involving marketing practices of multiple sales agents typically don’t fare well. See Gunnells v. Healthplan Servs., Inc., 348 F.3d 417, 434 (4th Cir. 2003) (reversing class certification of claims against individual agents).

Judge Mullen will have to decide whether these cautionary principles preclude certification of a class here, but from this vantage point, it looks like the Adesina plaintiff will have an uphill battle.

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Train Derailment Causes Estimated Damages in Excess of $13 Million

View Amanda Pickens’ Complete Bio at RBH.comLecroy v. CSX Transportation, Inc., No. 2:14-cv-02128 (D.S.C. June 2, 2014) arises from a CSX train derailment at the underpass of Cypress Gardens Road in Berkley County, South Carolina, which caused a bridge to collapse. A purported class of Berkley County citizens filed a negligence and strict liability action against CSX, seeking damages for the “cost for transportation,” including costs associated with a 22-mile detour route around the collapsed bridge. The lawsuit alleges a strict liability claim under South Carolina’s Anti-Blocking Statute, S.C. Code § 57-7-240, which imposes a fine of $5.00 to $20.00 per day per person against a railroad for blocking a public roadway. (Query, however, whether the state statute is preempted by Section 10501 of the Interstate Commerce Commission Termination Act, which confers exclusive jurisdiction over the regulation of railroad transportation to the Surface Transportation Board.)

CSX removed the action to the District Court of South Carolina pursuant to the Class Action Fairness Act, which permits removal of class actions where the putative class has at least 100 proposed members, the parties are of at least minimal diversity, and the aggregate amount in controversy exceeds $5 million. The first two requirements were undisputed, but the third requirement was more problematic because the complaint does not specify the amount of damages. CSX, in removing the action, stated that it had to prove by a preponderance of the evidence that the amount in controversy exceeds the jurisdictional requirement. The District Court has not ruled on this issue, but CSX relied on Crosby v. CVS Pharmacy, Inc., 409 F. Supp. 2d 665, 668 (D.S.C. 2005) in coming to this conclusion. But see Bartnikowski v. NVR, Inc., 307 F. App’x 730, 734 (4th Cir. 2009) (applying the preponderance of the evidence standard to determine the jurisdictional amount for an unspecified damages claim upon the parties’ agreement, but recognizing that although other circuits employ a preponderance standard, it has not yet been adopted in the Fourth Circuit). To estimate damages, CSX relied on a South Carolina Department of Transportation report stating that it will take 180 days to replace the bridge and that the bridge had an average daily traffic count of 6,200 vehicles. CSX calculated the plaintiffs’ requested damages to be in excess of $13 million by multiplying the IRS mileage reimbursement rate of $0.56 by a 22-mile detour route for 180 days, which equaled $2,217.60 per class member and $13,749,120 total for a class of 6,200 members. This $13 million was enough to satisfy the $5 million removal threshold. CSX also offered an alternative justification to meeting the amount-in-controversy requirement for removal based on the South Carolina Anti-Blocking Statute fines.

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