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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

Guest Post: Happy Birthday CAFA: Has It Improved the Federal Court System?

Posted in Resources

The CAFA Law Blog is pleased to publish another guest post.  This one is from Sarah Rawson.  Sarah, you have the floor….

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The Class Action Fairness Act of 2005 increased federal control of class action lawsuits. The purpose of the legislation was to revise the procedures that apply to consideration of interstate class actions to guarantee a more equitable result for members of class action lawsuits. The Act enables federal court supervision over class action lawsuits for more than $5 million that involved a citizen of a state different from the defendants’ state. Opinions vary wildly, however, regarding whether the law has actually improved the federal court system.

The law satisfied two objectives. First, it expanded federal diversity jurisdiction over class actions without "complete diversity," implementing supervision over class actions against out-of-state defendants. Second, it required a greater degree of federal examination of class action lawsuits and decreased the incidence of excessive attorney fees. Critics argued that the expansion of federal jurisdiction would come at the expense of state’s rights, but proponents maintained that the law was needed in order to prevent abuse in connection with class action lawsuits.

In the case of Adoma v. University of Phoenix, Inc., brought under the FLSA and California Labor Code, the court was able to use CAFA to employ supplemental jurisdiction.  (Editors’ Note:  See the CAFA Law Blog analysis of Adoma published on February 24, 2012).  Although a California District Court disposed of all the federal claims, it applied supplemental jurisdiction over the remaining state law claims because the amount in controversy was over the CAFA limit.

According to “Impact of CAFA on the Federal Courts,” issued by the Federal Judicial Center, research indicates that in class actions involving diversity, CAFA has caused “a 72 percent increase in class action activity in the eighty-eight district courts . . . studied,” compared to the pre-CAFA period. However, the report also stated that cases involving the Fair Labor Standards Act accounted for almost 47 percent of class actions in the federal system after the CAFA was enacted, compared to 25 percent of class actions prior to the passage of the legislation. At the same time, consumer fraud class actions have multiplied since the passage of CAFA. On average, almost ten such class actions have been filed every month. This is more than a threefold increase compared to the pre-CAFA period; such filings were generally less than three per month before CAFA was passed.

The FJC study found that the increase in diversity class actions was due primarily to an increase in consumer fraud filings. This finding suggests that contrary to expectations, plaintiffs’ attorneys are now choosing the federal forum, rather than defendants’ counsel.
The report ends with the conclusion that although CAFA has caused an increased number of class actions based on diversity of citizenship jurisdiction to be filed in the federal courts, personal injury cases have not increased.

It is hard to determine the success or failure of CAFA because the class action atmosphere is still in disarray, and lawyers who behaved one way before CAFA are now developing new methods to achieve the same results. It appears that consumer protection lawsuits have replaced personal injury class action as the lawsuit of choice. Judges are now examining class action cases more carefully. This attention itself will likely prevent the worst abuses. Although future reports have been promised, FJC researchers interpret their fourth interim report to “strongly suggest that CAFA has altered class action plaintiffs’ forum choices.”

As the Class Action Fairness Act (CAFA) of 2005 reaches its seventh birthday, it is clear that CAFA has affected both litigation and judicial action cases in the federal courts in some respects. The Act may not be functioning as expected; however, the studies so far are inconclusive and more research is needed.

This guest post was contributed by Sarah Rawson. Sarah is a tutor for various Criminal Justice and Corrections programs online. She also moonlights as a freelance writer. Her articles mainly appear on higher education blogs where she enjoys sharing her insights.