It is no secret that class action plaintiffs often prefer a state forum, but since the passage of the Class Action Fairness Act of 2005 (“CAFA”), many class actions that would otherwise fail the test for federal jurisdiction have nonetheless been steered to federal court. Yesterday, in a unanimous opinion, the Supreme Court placed limits around the reach of CAFA jurisdiction in Mississippi ex rel. Jim Hood v. AU Optronics Corp., Case No. 12-1036 (U.S. Jan. 14, 2014), holding that lawsuits brought solely by states on behalf of their citizens are not “mass actions” within the meaning of the CAFA and are therefore not subject to removal under its jurisdictional provisions.
This is the second SCOTUS ruling of the CAFA. Last year, in Standard Fire Insurance Co. v. Knowles, 133 S. Ct. 1345 (2013), the Supreme Court rejected a common tactic by the plaintiffs’ bar of stipulating to damages of less than $5 million to avoid removal under the CAFA (and held that plaintiffs’ counsel cannot bind unnamed class members with such a stipulation to avoid federal removal). It was a decidedly employer friendly ruling.
Mississippi ex rel. Jim Hood v. AU Optronics Corp. tilts the other way.
In in Mississippi ex rel. Jim Hood v. AU Optronics Corp., the State of Mississippi brought an action in state court against certain manufacturers of liquid crystal displays (“LCDs”) alleging price-fixing and other anticompetitive behavior. Defendants removed to federal court, arguing that the CAFA’s provision for “mass actions” encompassed the suit and provided federal jurisdiction. The CAFA defines a “mass action” to be “any civil action … 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.” 28 U.S.C. §1332(d)(11)(B)(i). The district court agreed that the suit was a “mass action,” but nevertheless remanded to state court based on the CAFA’s general public interest exception.
The U.S. Court of Appeals for the Fifth Circuit reversed, holding that the public interest exception did not apply, but agreeing that the suit fell under the CAFA’s definition of “mass action.” The Fifth Circuit’s holding created a circuit split, as the Fourth, Seventh, and Ninth Circuits had previously held that similar lawsuits were not mass actions under the CAFA.
The Court’s Decision
In an opinion authored by Justice Sonia Sotomayor, the Supreme Court unanimously reversed and held that suits brought solely in the name of a state are not removable to federal court under the CAFA because they are not “mass actions” as defined by that statute. Slip. Op. at 1.
Justice Sotomayor framed the issue as a simple matter of textual interpretation. The CAFA defines “mass actions” to be suits of “100 or more persons,” and a suit in which a state is the only named plaintiff fails this definition. Defendants argued that as a practical matter the state represents more than 100 real parties in interest who are the ultimate beneficiaries of the claims, but the Supreme Court rejected this rationale, reasoning that “the statute says ‘100 or more persons,’ not ‘100 or more named or unnamed real parties in interest.’” Slip Op. at 6. The Supreme Court went on to explain that the CAFA later refers to these same 100 persons as “plaintiffs,” and the plain meaning of plaintiff is a party who brings a civil lawsuit, not “anyone, named or unnamed, whom a suit may benefit.” Slip Op. at 7-8.
The Supreme Court also recognized that the major concern of the CAFA was class actions, and the mass action provision was largely a “backstop” to prevent plaintiffs from evading the CAFA by bringing suit in the name of multiple plaintiffs rather than as a class action pursuant to Rule 23. The Supreme Court opined that if Congress had intended to provide federal jurisdiction for representative actions by states, it would have done so explicitly. Slip Op. at 11.
Given the increase in representative enforcement litigation by state attorneys general, corporate defendants should expect to defend more of these suits in state court. Indeed, the same plaintiffs’ attorneys who file class action suits are sometimes deputized by states to pursue these kinds of representative actions. The possibility of enjoying a state forum without the specter of removal will likely motivate plaintiffs’ attorneys to seek more opportunities to file on behalf of the state rather than pursue claims as Rule 23 class actions.