Class Action Fairness Act 2005 – Potential Pitfalls for Defendants by Andrew J. McGuinness and Richard Gottlieb, Andrew’s Class Action Litigation Reporter, Volume 13, No. 9 Andrew’s Class Action Litig. Rep. 16. (October, 2006).
Finally, some practical application in all of these articles. Authors McGuinness and Gottlieb published an article in Andrew’s Class Action Litigation Reporter giving us a few practice pointers. And pretty good ones too. Although these pointers are drafted from the perspective of the defendants, those readers who represent plaintiffs should be able to figure out how to make them work for you too.
We all know that the Class Action Fairness Act was enacted on February 18, 2005. The authors begin their article by asking “Is this a Field Day for Corporate Defendants?” They quickly answer their question with a one word answer – “Hardly.” They say CAFA constitutes moderate reform and is more court reform than tort reform. Their article addresses a number of potential disadvantages, risks, and even landmines for defendants.
Watch out for a more plaintiff oriented judge. CAFA gives plaintiffs’ counsel an additional choice of forum not previously available: federal court. In other words, in some jurisdictions, the state courts are considered less hospitable to class actions than the corresponding federal forum.
Watch out for more statewide class actions in populous states. For those plaintiffs intent on avoiding federal court, the simple solution is to file multiple statewide class actions. Multiple statewide class actions require a more sophisticated defense strategy. Lead defense counsel will need to coordinate with multiple local firms; centralized document and fact discovery management will be crucial to comply with multiple discovery requests and deadlines and to preserve evidence in an accessible and cost effective manner.
Watch out for more class actions being certified. The proponents of CAFA are banking on federal courts not certifying state law claims for classes of consumers from many states. The authors of this article state that the flip-side of this equation is that when plaintiffs’ lawyers do what Congress has essentially told them to do – bring only class actions on behalf of class members from a single state if you want them to remain in state court – more of the statewide class actions will be certified since there is only one body of law to apply.
Class actions may cost more, at least in the short run. Litigation over various aspects of the Act for the next several years, plus the attendant interlocutory appeal process (at the discretion of the Court of Appeals) for remand rulings, will add a layer of complexity and motion practice to state law class actions for a few years at least. And, to the extent plaintiffs’ counsel respond by filing multiple statewide class actions, defendants may have 10 or 15 lawsuits to defend instead of one.
More class action trials. In state courts, where plaintiffs will file more statewide class actions, defendants will be encouraged to take more marginal cases to verdict, since the damages faced in any given state will be less monumental than for a nationwide class. In federal class actions, the increased judicial scrutiny of coupon settlements and the Act’s built-in financial disincentives for plaintiffs’ counsel to agree to coupon settlement mean fewer cases will settle. If the case is not dismissed and is not certified, the only alternative is trial.
Procedural pitfalls. The authors outline a couple of pitfalls defendants should watch out for. First, the court will likely allow discovery where the size of the class, the geographic diversity of the class members or the amount of claim damages is in dispute. Plaintiffs’ counsel may seek to discover at the outset the names and contact information of potential class members. This is information defendants often want to guard as long as possible to prevent plaintiffs’ counsel from hassling their customers, to avoid interference with their customer relationships, and to avoid assisting plaintiffs’ lawyer from recruiting a better or sympathetic named plaintiff. Second, defendants must guard against making any damning admissions at the removal stage. In other words, to take care to emphasize that plaintiffs are claiming damages that exceed five million dollars and to expressly couple that assertion in close proximity with a statement that defendant in no way concedes that plaintiff or class members actually sustained any such damages.
Settlement pitfalls. CAFA requires each defendant to file with an appropriate state official and the appropriate federal official a copy of any proposed settlement within 10 days of its filing with the district court, along with related pleadings. Failure to do so, under some circumstances, could negate the binding effect of a settlement for class members.
The authors conclude by noting that CAFA is not a talisman for corporate defendants even though it stands a good change of accomplishing its goals of diminishing the ability of certain state courts to certify nationwide class actions. The landscape has most definitely changed. Defendants must plot their course over the new terrain carefully.