CAFA and Erie: Unconstitutional Consequences?, Volume 75 Fordham Law Review 1065 (2006).
The Editors of the CAFA Law Blog are delighted to present a guest post for our readers. Justin Forlenza, a 3L at the Fordham Law School, has just published a law review article that analyzes the relationship between one of our favorite topics, the Class Action Fairness Act, and a topic we have not thought much about since we were in law school ourselves, the Erie doctrine. Now we turn over the microphone to Justin Forlenza.
Guest Post by Justin Forlenza
My article discusses CAFA’s relationship to the Erie doctrine. In short, the Erie doctrine restricts the power of federal courts to craft substantive common law. My central argument is that because CAFA expands federal jurisdiction over state-law class actions, it might force federal courts to create substantive federal common law with respect to interstate class actions.
The Erie court held that because the text of Article III does not grant federal courts the power to create substantive common law, federal courts are prohibited from doing so. Consequently, when a federal court is “sitting in diversity,” the court must apply state substantive law.
Prior to the enactment of CAFA, in order for a federal court to have the authority to adjudicate a state-law class action, all of the representative plaintiffs and defendants had to be diverse. Incomplete diversity would destroy federal jurisdiction and force the case back to state court. CAFA now extends federal jurisdiction over class actions in which any one plaintiff is diverse from any one defendant. In my Note, I argue that because CAFA only requires minimal diversity, there will be some areas of state law that will never be adjudicated by state courts.
An example can best illustrate my argument. Assume that State X is concerned that overzealous home construction companies are taking advantage of citizens who rent construction equipment. Consequently, State X enacts a consumer protection law that makes it illegal for companies to charge customers a supplemental waiver fee for construction equipment rentals. The damages that a plaintiff can recover in any individual case will be small; therefore, potential plaintiffs will have a strong incentive to aggregate their claims as a class action. However, because the economy is nationally-integrated, it is likely that the defendants will be able to establish the minimal diversity sufficient to create diversity jurisdiction under CAFA. For instance, it is probable that there is a large chain store near the border of State Y that attracts State Y’s citizens, so the potential class will likely contain at least some out-of-staters.
In many cases, America’s robust nationally-integrated economy will create the conditions necessary to satisfy CAFA’s minimal diversity requirement. As a result, CAFA will preclude State X’s courts from adjudicating this class action’s claims that are based on State X’s duly-enacted state consumer protection law. State X’s courts will never have a chance to define the boundaries of that state’s consumer protection law. Hence, the federal court, out of necessity, will be forced to fill the gap in state substantive law, thereby creating federal common law, which is contrary to the Erie doctrine.
Now, admittedly, a federal court can (and probably should) do one of two things to alleviate the risk of implicating the Erie doctrine. First, federal courts can make liberal use of CAFA’s two jurisdictional exceptions, the local controversy exception and the catchall exception. Although this would help lessen the Erie doctrine problem, it would not completely solve it, because neither exception would be available to plaintiffs in every instance where a federal court faced a class action involving a novel issue of state law.
Second, federal courts can certify novel questions of state law to state courts. This solution does alleviate the Erie doctrine concerns because state courts would be resolving issues of state law. However, in practice this might be a difficult objective to achieve. Finally, this solution does not deal with the risk that federal common law might still creep in at the margins. If a federal court adjudicates state law claims where a state court has only spoken to the state law in a limited number of cases, the federal court might be forced to create new law.
Thank you for giving me the opportunity to write a guest post. I hope that my article can at least add to the debate over the potential Erie doctrine costs of a federalized state-law class action regime. My article is available for free download at: http://law.fordham.edu/publications/articles/500flspub7432.pdf