Class Action Defense Blog

28 U.S.C. § 1446 - One Year Limit on Removal

Class action defendants often benefit if they can remove the case to federal court if possible. CAFA (Class Action Fairness Act of 2005) was enacted to greatly expand access to federal courts in class action cases. Removal of cases to federal court generally is governed by 28 U.S.C. §1446. CAFA is discussed in a separate article.

The procedure for removal is set forth in 28 U.S.C. § 1446. As a general rule the defendant must remove the case to federal court within 30 days of receipt of the complaint or “a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable,” 28 U.S.C. § 1446(b). However, if the basis of removal is diversity jurisdiction, then the matter may not be removed more than one year after the lawsuit was filed. Id. The 30-day limit is discussed in a separate article; this article discusses the one-year limitation.

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Posted In: Removal & Remand

Class action litigation is rampant in the United States, and defending against a class action lawsuit is both expensive and time-consuming. In enacting CAFA (Class Action Fairness Act of 2005), Congress acknowledged that class actions are an important and valuable part of the legal system “when they permit the fair and efficient resolution of legitimate claims of numerous parties by allowing the claims to be aggregated into a single action against a defendant that has allegedly caused harm.” However, Congress also recognized that the abusive use of class actions has harmed the public, harmed businesses, and undermined public respect for the judicial system.

In particular, Congress was concerned that many class actions benefited plaintiffs’ counsel more than the public. “Class members often receive little or no benefit from class actions, and are sometimes harmed,” whereas “[plaintiffs’] counsel are awarded large fees, while leaving class members with coupons or other awards of little or no value.” Moreover, certain plaintiffs receive unjustifiable awards at the expense of other class members.

Congress was also concerned that by manipulation of diversity jurisdiction plaintiffs’ counsel had managed to keep cases of “national importance” in state court, and that state courts would “sometimes act[] in ways that demonstrate bias against out-of-State defendants” and enter judgments that would “impose their view of the law on other States and bind the rights of the residents of those States.”

Congress therefore enacted the Class Action Fairness Act (“CAFA”) for several purposes. When a proposed class action settlement awards coupons to class members, then CAFA requires that the federal district court expressly find that the settlement is fair, reasonable and adequate. The federal court also cannot approve such a settlement if attorney fees awarded to class counsel result in a net monetary loss to the class unless the court expressly finds that the monetary loss is substantially outweighed by nonmonetary benefits to the class. CAFA also specifies the calculation of contingent and other attorney fee awards when the proposed class action settlement involves providing coupons to class members. Finally, CAFA prohibits class settlements that give greater benefits to some class members because they are geographically nearer to the court. To ensure the fairness of proposed class settlements, CAFA requires that notice of proposed settlements be served on the appropriate State and Federal officials, and forbids the court from approving such settlements less than 90 das after service of such notice.

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Posted In: Class Action Fairness Act (CAFA)

Class action plaintiff firm Milberg Weiss Bershad & Schulman LLP and two of the firm’s top partners, David Bershad and Steven Schulman, were indicted in mid-May 2006 for paying millions of dollars in kickbacks to clients to serve as plaintiffs. Brooke Masters of The Washington Post reports that the case breaks a familiar trend of corporate defendants cooperating with government prosecutors “such as Computer Associates International Inc., accounting firm KPMG LLP and drugmaker Bristol-Myers Squibb Co., agreeing not to press criminal charges in exchange for sweeping management changes, large financial penalties and help putting individual employees behind bars.”

Masters reports that simply indicted the firm could run it out of business, and explains why the indictment has reopened the debate on whether the Justice Department should indict companies and the basis for concerns that the indictment may have been politically motivated.

Regardless of the motivation for the indictment, if the allegations are true then the firm’s conduct was illegal and the practice had to be stopped. More details may be found in Brooke Masters’ article, “A Law Firm Under Pressure,” printed May 25, 2006, in The Washington Post.

Posted In: Class Actions In The News

Class action plaintiff firm Milberg Weiss Bershad & Schulman LLP and two of the firm’s top partners, David Bershad and Steven Schulman, were indicted in mid-May 2006 for paying millions of dollars in kickbacks to clients to serve as plaintiffs. Lynnley Browning of the New York Times reports that one of the lead plaintiffs in the class action against accounting firm KPMG claims “that he was offered a financial incentive to serve as plaintiff.”

Settlements in class action cases require court approval, and a proposed $153 million settlement in the KPMG action was to be heard by the federal judge on May 26, 2006. For more information, please see Lynnley Browning’s article, “Plaintiff Says Incentives Were Offered in KPMG Case,” printed May 26, 2006, in The New York Times.

Posted In: Class Actions In The News

CAFA (Class Action Fairness Act of 2005) Places Burden of Proof on Plaintiff to Establish Local Controversy Exception to Removal Eleventh Circuit Holds

CAFA contains several provisions that still require judicial interpretation. On May 22, 2006, the Eleventh Circuit considered as a matter of first impression for any Circuit Court of Appeals “the specific question of which party should bear the burden of proof on CAFA’s local controversy exception.” Evans v. Walter Industries, Inc., 449 F.3d 1159, 1164 (11th Cir. 2006). Evans "hold[s] that the plaintiffs bear the burden of proving the local controversy exception," id., at 1165 (italics added). The Court noted that this "places the burden on the party most capable of bearing it" because "plaintiffs have defined the class and have better access to information about the scope and composition of the plaintiff class." Id., at 1164 n.3.

The Eleventh Circuit analyzed the evidence presented to the district court and found it wholly inadequate to establish a local controversy. See Evans, at 1164-68. The court rejected the purported showing that two-thirds of the plaintiff class are Alabama citizens, and rejected further that the token Alabama corporation was a "significant defendant" within the meaning of CAFA. In so doing, Evans appears to have adopted (or at the least to have applied) the test "that a class seeks 'significant relief' against a defendant when the relief sought against that defendant is a significant portion of the entire relief sought by the class." Id., at 1167 (citations omitted).

NOTE: The Eleventh Circuit expressly noted that its opinion concerns only the local controversy exception in 28 U.S.C. § 1332(d)(4)(A), and does not reach the question of the local controversy exception in 28 U.S.C. § 1332(d)(4)(B). Evans, at 1163 n.2.

Posted In: Class Action Fairness Act (CAFA), Class Actions In The News, Removal & Remand, Class Action Court Decisions

When defending against a class action, it is important to understand that special rules apply under Class Action Fairness Act (CAFA) concerning the appealability of remand orders. Whether a federal district court order remanding an action to state court may be reviewed on appeal is important to any defendant, but special rules apply if the action has been removed to federal court under the Class Action Fairness Act of 2005. Because the focus of this article is on appellate review of district orders granting motions to remand a lawsuit to state court a case removed under CAFA, removal and remand are not discussed here; discussions of each may be found in separate articles, as is a discussion concerning appellate review of remand orders in non-CAFA cases.

Put simply, appellate review is available for remand orders in cases governed by the Class Action Fairness Act of 2005. Under CAFA, Congress expressly provided that “notwithstanding section 1447(d), 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 to the State court from which it was removed if application is made to the court of appeals not less than 7 days after entry of the order.” 28 U.S.C. § 1453(c)(1). A defendant must be wary, however, of the quick fuse on filing its notice of appeal: by its terms, the 7-day time limit runs from “entry of the order,” rather than from “notice of entry of the order.”

CAFA also provides for expedited appellate review of remand orders: “If the court of appeals accepts an appeal under paragraph (1), the court shall complete all action on such appeal, including rendering judgment, not later than 60 days after the date on which such appeal was filed, unless an extension is granted under paragraph (3).” 28 U.S.C. § 1453(c)(2) (italics added). The extensions are limited to either (1) “any period of time” agreed upon by all parties, 28 U.S.C. § 1453(c)(3)(A), or (2) no more than 10 days, 28 U.S.C. § 1453(c)(3)(B). If the Circuit Court fails to rule within the statutory time period, then the appeal is deemed denied. 28 U.S.C. § 1453(c)(4).

Posted In: Class Action Fairness Act (CAFA)

Part III Considerations Regarding Removal to Federal Court

A lender that must defend itself against a class action alleging violations of RESPA may benefit from removing the case to federal court. A defendant may remove a case to federal court if there is any “separate and independent” claim subject to federal question jurisdiction: “A federal court has removal jurisdiction if the plaintiff's claims are either exclusively federal or there is a separate and independent federal question. 28 U.S.C. § 1441. In order for a defendant to remove, the federal claims must appear on the face of plaintiff's well-pleaded complaint. Tingey v. Pixley-Richards West, Inc., 953 F.2d 1124, 1129 (9th Cir. 1992).” Lyons v. Alaska Teamsters Emplr. Serv. Corp., 188 F.3d 1170, 1171 (9th Cir. 1999). A separate article considers removal under CAFA (Class Action Fairness Act of 2005).

In federal court, Rule 23 of the Federal Rules of Civil Procedure governs class actions. Federal courts examine the numerosity, commonality, and typicality of the plaintiff’s claims. The courts also consider whether separate lawsuits would create a risk of inconsistent adjudications that would require the defendant comply with incompatible directions. In state court, however, California Code of Civil Procedure section 382 governs class actions. The “community of interest” requirement for class certification in state court consists of three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class. While the standards may appear to be substantively identical, they are quite different in practice. In my opinion, the federal law governing class actions is much better developed than California state law. It is also my opinion that a corporate defendant is well served to remove a case to federal court whenever possible.

Once removed, the federal court may, in its discretion, adjudicate the entire case, including state claims that could not be adjudicated under the federal court’s original jurisdiction. 28 U.S.C. § 1441(c). Removal is proper even if the plaintiff’ federal claim is meritless, see Barraclough v. ADP Auto. Claims Services, 818 F. Supp. 1310, 1312 (N.D. Cal. 1993), and removal is proper even if the relief the plaintiff seeks is unavailable under the federal claim, see Caterpillar Inc. v. Williams, 482 U.S. 386, 391, n.4 (1987).

With respect to RESPA claims, RESPA requires a lender to provide a HUD-1 or HUD-1A settlement statement to “clearly itemize all charges imposed upon the Borrower,” and that this settlement statement is required by 12 U.S.C. § 2603(a). A lender is required also to provide borrowers with “a Good Faith Estimate” (the “GFE”) to include “estimates of the amounts or ranges of all settlement costs likely to be incurred at the closing,” and the GFE is required by 12 U.S.C. § 2604(c) and Regulation X, 24 C.F.R. section 3500.7(a). Thus, if the Complaint alleges that the lender surprised borrowers with additional closing costs, then the basis of the lawsuit is an alleged violation of federal law: if the lender had disclosed properly all closing costs as required by RESPA and Regulation X, then the plaintiff would not have been injured.

Continue reading "Considerations Regarding Removal to Federal Court: Defense Of Class Action Claims Alleging RESPA Violations Part III" »

Posted In: RESPA/TILA Class Actions

Defending Class Action Claims Alleging RESPA Violations

Part II Federal Court versus State Court Jurisdiction

Even though RESPA is a federal statute, many class action lawsuits against lenders alleging RESPA violations are filed in state court. Defending class action RESPA claims requires a careful analysis of the specific statute(s) at issue, as this will dictate whether the action may be removed to federal court. While RESPA grants concurrent jurisdiction to state courts as to certain matters, Congress expressly limited concurrent jurisdiction to those sections of RESPA governed only by sections 2605, 2607 and 2608. 12 U.S.C. § 2614. Otherwise, federal jurisdiction is exclusive.

That Congress afforded state courts concurrent jurisdiction only over certain portions of RESPA and retained exclusive federal court jurisdiction over the balance of RESPA is not unique. For example, as the Ninth Circuit has held, “Bankruptcy courts have exclusive jurisdiction over nondischargeability actions brought pursuant to 11 U.S.C. § 523(a)(2), (4), (6) and (15),” Rein v. Providian Fin. Corp., 270 F.3d 895, 904 (9th Cir. 2001) (citations omitted) (italics added), but “Bankruptcy courts and state courts have concurrent jurisdiction over all [other] nondischargeability actions,” id., at n.15 (italics added). “For example, there is concurrent state and federal jurisdiction over § 523(a)(5) nondischargeability actions,” id., at 904 n.15 (citations omitted) (italics added), but a creditor could not seek relief from stay and pursue in state court a nondischargeability claim “with regard to its § 523(a)(2) claims because state courts lack jurisdiction to adjudicate § 523(a)(2) actions,” id., at 904 (italics added).

Plaintiffs’ alleged violations of 12 U.S.C. sections 2603 and 2604 must be heard in federal court because state courts lack jurisdiction to consider them. To hold otherwise would be to conclude that Congress idly specified limitations in 12 U.S.C. § 2614 on the scope of concurrent jurisdiction when it intended that no such limitations exist.

Continue reading "Federal Court versus State Court Jurisdiction: Defense Of Class Action Claims Alleging RESPA Violations Part II" »

Posted In: RESPA/TILA Class Actions

Defending Class Action Claims Alleging RESPA Violations

Part I Overview of Statute and Summary of Jurisdiction

Many lenders have had to defend themselves against class actions alleging violations of RESPA. In simplest terms, the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. sections 2601 et seq., and Regulation X (24 C.F.R. sections 3500 et seq.) governs disclosures to borrowers of the closing costs associated with residential loan transactions. RESPA is a “consumer protection” statute, enacted in 1974 to protect borrowers whose loans will be secured by a mortgage against one-to-four family residential property. It serves two main purposes. First, it serves to educate the consumer-borrower about the costs of settlement services (that is, the costs associated with borrowing money). Second, it serves to eliminate “unearned fees,” such as kickbacks or referral fees, as such fees increase the cost of the loan to the borrower.

RESPA requires that both mortgage brokers and lenders make certain disclosures to borrowers at the time the borrower applies for the loan. Specifically, RESPA requires a lender to provide a HUD-1 or HUD-1A settlement statement to “clearly itemize all charges imposed upon the borrower,” 12 U.S.C. § 2603(a). The HUD-1 Settlement Statement itemizes for the borrower the actual settlement costs of the loan transaction. A lender is required also to provide borrowers with “a Good Faith Estimate” (the “GFE”) to include “a good faith estimate of the amount or range of charges for specific settlement services the borrower is likely to incur” at the closing, 12 U.S.C. § 2604(c) and 24 C.F.R. § 3500.7(a). (Other RESPA requirements are discussed in a separate article.)

Federal courts have original jurisdiction in cases involving RESPA violations, see Dominguez v. Alliance Mtg. Co., 226 F. Supp. 2d 907, 914 (N.D. Ill. 2002), and RESPA claims are properly subject to removal, Sicinski v. Reliance Funding Corp., 461 F. Supp. 649, 650-51 (S.D. N.Y. 1978). Unfortunately, case law discussing state versus federal court jurisdiction over RESPA claims often glosses over critical statutory differences enacted by Congress. More specifically, while Congress provided for concurrent state and federal jurisdiction over certain portions of REPSA, federal courts have exclusive jurisdiction over other RESPA violations. 12 U.S.C. § 2614.

For example, the requirement that consumers be timely and accurately informed of the closing costs associated with residential loans is based on federal law. “The Congress finds that significant reforms in the real estate settlement process are needed to insure that consumers throughout the Nation are provided with greater and more timely information on the nature and costs of the settlement process and are protected from unnecessarily high settlement charges caused by certain abusive practices that have developed in some areas of the country.” 12 U.S.C. § 2601(a).

In order to redress these concerns, RESPA requires a lender to provide a HUD-1 or HUD-1A settlement statement to “clearly itemize all charges imposed upon the borrower,” 12 U.S.C. § 2603(a). Federal law further requires a lender to provide borrowers with “a Good Faith Estimate” (the “GFE”) that includes “a good faith estimate of the amount or range of charges for specific settlement services the borrower is likely to incur” at the closing, 12 U.S.C. § 2604(c) and 24 C.F.R. § 3500.7(a). The failure to timely or accurately disclose to a borrower the closing costs likely to be incurred in connection with a residential loan transaction violates RESPA.

RESPA requires a lender to provide a HUD-1 or HUD-1A settlement statement to “clearly itemize all charges imposed upon the Borrower,” and that this settlement statement is required by 12 U.S.C. § 2603(a). A lender is required also to provide borrowers with “a Good Faith Estimate” (the “GFE”) to include “estimates of the amounts or ranges of all settlement costs likely to be incurred at the closing,” and the GFE is required by 12 U.S.C. § 2604(c) and Regulation X, 24 C.F.R. section 3500.7(a).

Thus, if, for example, a plaintiff alleges that the lender surprised borrowers with unexpected closing costs, or otherwise failed to disclose certain closing costs not expressly referenced in a HUD-1 or HUD-1A, then the action is based exclusively on federal law. Put simply, under such circumstances, the bottom line is that if the lender had disclosed properly all closing costs as required by RESPA and Regulation X, then the plaintiff would not have been injured. Such a claim, then, is derived entirely from alleged violations of federal law viz., RESPA and Regulation X.

It is well settled that RESPA claims are subject to removal. Sicinski v. Reliance Funding Corp., 461 F. Supp. 649, 650-51 (S.D. N.Y. 1978). Indeed, federal courts have original jurisdiction in cases involving alleged RESPA violations. See Dominguez v. Alliance, 226 F.Supp. 2d at 914 (“Our jurisdiction . . . was predicated on the federal RESPA claims. . . . Having disposed of all claims over which we had original jurisdiction, we decline to exercise our supplemental jurisdiction over the remaining state law claim.” (Italics added.)). Accord Ploog v. Homeside Lending, Inc.¸ 209 F. Supp. 2d 863, 867 (N.D. Ill. 2002) (RESPA claim “only claim over which the Court has original jurisdiction”); DeLeon v. Beneficial Const. Co., 998 F. Supp. 859, 867 (N.D. Ill. 1998).

A lender must be careful to analyze whether the plaintiff’s right to relief depends on the resolution of a substantial, disputed federal question such as whether the lender allegedly violated RESPA and Regulation X. If the Complaint does not advance independent state law claims but, rather, posits theories that are wholly derivative of federal law, then removal may be proper. Moreover, lenders must remember that Congress did not grant concurrent jurisdiction to state courts for all alleged RESPA violations, and must analyze whether jurisdiction over the claims in a complaint is exclusively federal.

Posted In: RESPA/TILA Class Actions

Class action plaintiff firm Milberg Weiss Bershad & Schulman LLP learned on May 18, 2006, that it had been indicted by federal prosecutors in Los Angeles for paying more than $11 million in kickbacks to clients to serve as plaintiffs. The 102-page, 20-count criminal indictment also names two of the firm’s top partners, David Bershad and Steven Schulman. Nathan Koppel and Peter Lattman of the Wall Street Journal reported on the fallout from the indictment, including “the Ohio attorney general firing the powerhouse law firm as counsel in a class-action case.”

Koppel and Lattman report that the indictment alleges the firm “made the alleged kickbacks to gain a strategic edge in the pitched competition to be lead counsel in class actions.” The problem is simple, and concisely framed by the Wall Street Journal: “It is illegal for lead plaintiffs to receive more in compensation than other members of a class.”

The article explains that this could be just the beginning of the end: “Many legal experts say a torrent of challenges to the firm’s role as counsel in class-action cases could threaten the firm’s existence.” The potential fallout from the indictment is thoroughly discussed in Koppel’s and Lattman’s article, “Milberg Dealt Blow as Indictment Fallout Grows,” printed May 20, 2006, in The Wall Street Journal.

Posted In: Class Actions In The News

District Court Properly Granted Defense Motion for Judgment on the Pleadings in Class Action Because no Private Right of Action Exists Under Federal Real Estate Settlement Practices Act (RESPA) Eleventh Circuit Holds

On May 26, 2006, the Court of Appeals for the Eleventh Circuit affirmed a judgment entered on a motion for judgment on the pleadings in a putative class action alleging RESPA (Real Estate Settlement Practices Act) violations on the ground that no private right of action exists under Section 10 of RESPA. Hardy v. Regions Mortgage, Inc., ___ F.3d ___, 2006 WL 1452666 (11^th Cir. 2006). Separate articles discuss various issues presented by claims under RESPA.

In Hardy, plaintiffs refinanced their home with Regions Mortgage in 1996 and later received from Cendant Corporation about a “Shoppers Advantage” program that, for $5 a month, entitled plaintiffs to discounts from certain retailers. Plaintiffs joined the program and authorized Regions to add the $5 monthly charge to their mortgage payment. Time passed, and plaintiffs forgot about the Shoppers Advantage program. In 2003, however, they noticed that the $5 monthly fee “had been paid out of their escrow account but was not listed on their mortgage statements.” Plaintiffs filed a putative class action alleging that Regions had violated RESPA by failing to include the $5 fee on their escrow account statement, and had conspired with Cendant to violate RESPA. The district court granted judgment on the pleadings because the complaint alleged a violation of Section 10 of RESPA, for which no private right of action exists, rather than Section 6 of RESPA, which provides for certain private rights of action.

The Eleventh Circuit affirmed. The Hardy court explained that Section6 of RESPA requires that federally related mortgage lenders disclose that “the loan may be assigned, sold or transferred” during its life, and provides for a private right of action for noncompliance. Section 10 of RESPA, however, requires lenders to “provide annual escrow account statements that clearly itemize ‘the amount of the borrower’s current monthly payment . . . the total amount paid out of the escrow account during the period for taxes, insurance premiums, and other charges . . ., and the balance in the escrow account at the conclusion of the period.’” However, Congress did not provide for private rights of action for noncompliance; rather, “the Secretary shall assess . . . a civil penalty” instead. Because plaintiffs alleged a violation of Section 10 of RESPA, and because there is no private right of action under Section 10, the Eleventh Circuit affirmed the judgment.

NOTE: Because it was unnecessary, the Eleventh Circuit did not discuss the fact that Congress did not afford private rights of action for every conceivable alleged violation of Section 6.

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

Arbitration Agreements: Who Decides Legality of Arbitration Clause?

On February 21, 2006, the United States Supreme Court addressed “whether a court or an arbitrator should consider the claim that a contract containing an arbitration provision is void for illegality.” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. ___, 126 S.Ct. 1204, 1207 (2006). Plaintiffs filed a putative class action alleging that the interest rates in various deferred-payment transactions with Buckeye Check Cashing “in which they received cash in exchange for a personal check in the amount of the cash plus a finance charge” were usurious. Plaintiffs also alleged that the Deferred Deposit and Disclosure Agreement (“Agreement”) violated Florida lending and consumer-protection statutes. Id.

The Agreement contained an arbitration clause. Nonetheless, the trial court denied Buckeye’s motion to compel arbitration, “holding that a court rather than an arbitrator should resolve a claim that a contract is illegal and void ab initio.” The Florida appellate court reversed on the ground that plaintiffs challenged the Agreement in its entirety, not the arbitration clause alone, so “the agreement to arbitrate was enforceable, and the question of the contract’s legality should go to the arbitrator.” The Florida Supreme Court in turn reversed the appellate court, and the United States Supreme Court granted certiorari. Buckeye, at 1207.

The Supreme Court observed that there is a strong policy in favor of arbitration, and that Congress enacted the Federal Arbitration Act to “overcome judicial resistance to arbitration.” Buckeye, at 1207. The Court explained that legal challenges to arbitration provisions fall into two general categories: (1) a specific challenge to the arbitration clause itself; and (2) a challenge to the legality of the contract as a whole. The Buckeye complaint falls into the second category.

The Supreme Court reviewed prior opinions and enunciated three broad propositions: “First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. Second, unless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance. Third, this arbitration law applies in state as well as federal courts.” Buckeye, at 1209 (italics added). To hold otherwise, the Court concluded, would create the possibility that the trial court may “deny effect to an arbitration provision in a contract that the court later finds to be perfectly enforceable.” Id., at 1210.

Apparently concerned with remaining “judicial resistance to arbitration,” the Supreme Court summarized its decision in very broad terms: “We reaffirm today that, regardless of whether the challenge is brought in federal or state court, a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.” Buckeye, at 1210.

NOTE: The Supreme Court expressly reserved the question of whether a court or an arbitrator should resolve “the issue of whether any agreement between the alleged obligor and obligee was ever concluded.” Buckeye, at 1208 n.1.

Posted In: Arbitration, Class Action Court Decisions

CAFA (Class Action Fairness Act of 2005) Requires That Appeal From Grant Or Denial of Motion to Remand Must Be Made Within 7 Days Ninth Circuit Holds

On May 22, 2006, the Court of Appeals for the Ninth Circuit refused to reconsider en banc its decision in Amalgamated Transit Union Local 1309 v. Laidlaw Transit Serv., Inc., 435 F.3d 1140 (9^th Cir. 2006). However, six justices dissented from the denial of rehearing en banc, and severely criticized as an “abuse of our judicial power” the decision to read “less” as “more.” The dissent is authored by Circuit Judge Bybee, and joined in by Judges Kozinski, O’Scannlain, Rymer, Callahan and Bea.

Download PDF of Amalgamated Transit Union Local 1309 v. Laidlaw Transit Serv., Inc.,

Posted In: Class Action Court Decisions

CAFA (Class Action Fairness Act of 2005) Requires Appeal From Grant or Denial of Motion to Remand Be Made Within 7 Court Days Ninth Circuit Holds

On January 26, 2006, the Court of Appeals for the Ninth Circuit denied a motion to dismiss as untimely an appeal under CAFA (Class Action Fairness Act of 2005) from a district court order denying a motion to remand a putative class action to state court. Amalgamated Transit Union Local 1309 v. Laidlaw Transit Serv., Inc., 435 F.3d 1140 (9^th Cir. 2006). Specifically, the Ninth Circuit held that "the petition for permission to take an appeal must be filed not more than seven court days after the district court's order." Id., at 1141.

The underlying action was filed in San Diego Superior Court in April 2005, and removed to federal court in June 2005. Plaintiffs moved to remand the matter to state court; the district court denied the motion on October 4, 2005, and the order thereon was entered October 5, 2005. Plaintiffs filed a notice of appeal therefrom on October 11, 2005.

On November 9, 2005, a defendant moved to dismiss the appeal. While the opinion addresses several issues, we focus here on the Ninth Circuit's interpretation of CAFA's provision for appeal of district court orders granting or denying motions for remand. 28 U.S.C. S 1453(c)(1) literally provides that review must be sought "not less than 7 days after entry of the order" (italics added). As the Court observed,

The Tenth Circuit in Pritchett v. Office Depot, Inc., 420 F.3d 1090, 1093 n.2 (10^th Cir. 2005), concluded that the statute contains a "typographical error," and the word "less" should be "more," thereby avoiding "a result demonstrably at odds with the intentions of its drafters."

Amalgamated Transit, at 1145 (citations omitted).

The Ninth Circuit agreed, concluding that the legislative history reveals an intent "to create a time limit for appeal, specifically to require that the party seeking to appeal do so not more than seven days after the district court's order." 435 F.3d at 1146 (citations omitted, italics in original).

The Ninth Circuit thus joined the Tenth Circuit in "striking a word passed on by both Houses of Congress and approved by the President, and replacing it with a word of the exact opposite meaning." 435 F.3d at 1146.

Posted In: Class Action Fairness Act (CAFA), Removal & Remand, Class Action Court Decisions

Defending Class Actions: Certification Under Rule 23 – Part II

The Numerosity Requirement of Rule 23(a)(1)

In defending a class action, the single most important motion facing a defendant is the plaintiff’s motion to certify a class. Rule 23(a) requires that the plaintiff demonstrate numerosity, commonality and typicality, and that the class members will be adequately represented, and must additionally demonstrate that the action satisfies Rule23(b). The class action requirements of Rule 23 are mandatory. Thus, class certification requires that the prospective class representative satisfy the elements set forth in Rule 23(a), as well as the elements of Rule 23(b) (discussed in a separate article) be met. General Telephone Co. of Southwest v. Falcon, 457 U.S. 152, 102 S.Ct. 2364 (1982) (reversing class certification for failure to analyze Rule 23 requirements). This article discusses the numerosity requirement of Rule 23(a).

Rule 23(a)(1) of the Federal Rules of Civil Procedure provides that a class action may not be maintained unless “the class is so numerous that joinder of all members is impracticable.” It has been said that numerosity and commonality “form the core of the class-action concept.” Newberg on Class Actions, “Prerequisites for Maintaining a Class Action,” §3:13, p.316. However, no bright line or threshold exists at which the numerosity requirement is met. Each circumstance must be examined on a case-by-case basis. General Telephone Co. v. E.E.O.C., 446 U.S. 318, 330, 100 S.Ct. 1698 (1980).

There are, of course, the obvious cases. See e.g., Georgine v. Amchem Products, Inc., 83 F.3d 610, 626 n.11 (3rd Cir. 1996), aff’d, Amchem Products, Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231 (1997) (“This class, which may stretch into the millions, easily satisfies the numerosity requirement.”); In re General Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768, 800 (3rd Cir. 1995), cert. denied, General Motors Corp. v. French, 516 U.S. 824, 116 S.Ct. 88 (1995) (“The numerosity requirement of Rule 23(a) is plainly satisfied in this action encompassing nearly six million truck owners.”); Ballard v. Equifax Check Services, Inc., 186 F.R.D. 589, 594 (E.D. Cal.1999) (class of “approximately 1.4 million California residents” satisfied numerosity).

Continue reading "Class Action Defense Issues: Certification of Class Actions Numerosity Requirement Under Rule 23(a)(1)" »

Posted In: Certification of Class Actions

District Court Denial of Motion to Remand MDL Actions Involving Opt-Out Class Members Following Class Action Settlement Agreement Does Not Warrant Writ of Mandamus (Mandate) Because Appellate Review Will Provide Adequate Relief, and District Court Ruling on Fraudulent Joinder Upheld Because Statute of Limitations Had Run on Non-diverse Defendants, Third Circuit Holds

Fraudulent joinder is discussed in separate articles which explain a plaintiff may not join a party-defendant for purposes of defeating federal court jurisdiction. MDL (Multidistrict Litigation) topics also are discussed in separate articles which explain that the Judicial Panel for Multidistrict Litigation may transfer litigation pending in multiple courts to a single district court for pretrial proceedings. The MDL cases must be remanded prior to trial, and it is incumbent upon a party to the MDL litigation to file a motion for such remand. On May 15, 2006, in a case brought by individuals who had opted out of a class action settlement agreement, the Third Circuit refused to grant a petition for writ of mandamus to review a district court order denying remand on the grounds that appellate review would be adequate, and the Third Circuit affirmed the district court's ruling that non-diverse parties had been fraudulently joined to defeat federal court jurisdiction. In re Briscoe, 448 F.3d 201 (3d Cir. 2006).

The underlying has a tortured background. In 1997, Wyeth withdrew two diet drugs from the market - and 18,000 lawsuits followed. The Judicial Panel for Multidistrict Litigation consolidated the actions and transferred them to the Eastern District of Pennsylvania (MDL-1203). After four separate trips to the Third Circuit that "set forth various facets of the background to MDL-1203 and its class action settlement agreement," the class action settlement was consummated. Briscoe, at 206. More than 14,000 additional lawsuits followed, brought by 30,000-35,000 individuals who had opted out of the class action settlement. The group of 127 lawsuits at issue in Briscoe had been filed in Texas state court between November 2002 and August 2003, had included as named defendants the individual doctors that had prescribed the diet drugs, and had not alleged any federal law claims. Id., at 208-09. Wyeth removed the cases to federal court and the MDL Judicial Panel transferred the cases to the docket of MDL-1203. Id., at 209.

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Posted In: Class Actions In The News, Multidistrict Litigation, Removal & Remand, Class Action Court Decisions

Defending Class Actions: Certification Under Rule 23 – Part II

The Commonality Requirement of Rule 23(a)(2)

In defending a class action, the single most important motion facing a defendant is the plaintiff’s motion to certify a class. Rule 23(a) requires that the plaintiff demonstrate numerosity, commonality and typicality, and that the class members will be adequately represented, and must additionally demonstrate that the action satisfies Rule23(b). The class action requirements of Rule 23 are mandatory. Thus, class certification requires that the prospective class representative satisfy the elements set forth in Rule 23(a), as well as the elements of Rule 23(b) (discussed in a separate article) be met. General Telephone Co. of Southwest v. Falcon, 457 U.S. 152, 102 S.Ct. 2364 (1982) (reversing class certification for failure to analyze Rule 23 requirements). This article discusses the commonality requirement of Rule 23(a).

Rule 23(a)(2) of the Federal Rules of Civil Procedure provides that a class action may not be maintained unless “there are questions of law or fact common to the class.” It has been said that numerosity and commonality “form the core of the class-action concept.” Newberg on Class Actions, “Prerequisites for Maintaining a Class Action,” §3:13, p.316. As the Third Circuit noted, "‘commonality’ like ‘numerosity’ evaluates the sufficiency of the class itself, and ‘typicality’ like ‘adequacy of representation’ evaluates the sufficiency of the named plaintiff." Hassine v. Jeffes, 846 F.2d 169, 176 n.4 (3d Cir.1988).

“Rule 23 does not require that the representative plaintiff have endured precisely the same injuries that have been sustained by the class members, only that the harm complained of be common to the class, and that the named plaintiff demonstrate a personal interest or ‘threat of injury . . . [that] is “real and immediate,” not “conjectural” or “hypothetical.”’” Hassine, at 177 (quoting O'Shea v. Littleton, 414 U.S. 488, 494, 94 S.Ct. 669 (1974). Thus, in Georgine, supra, the Third Circuit held that “commonality” did not exist because “this class is a hodgepodge of factually as well as legally different plaintiffs.” Georgine v. Amchem Products, 83 F.3d at 632.

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Posted In: Certification of Class Actions

Defending Class Actions: Certification Under Rule 23 – Part II

The Typicality Requirement of Rule 23(a)(3)

In defending a class action, the single most important motion facing a defendant is the plaintiff’s motion to certify a class. Rule 23(a) requires that the plaintiff demonstrate numerosity, commonality and typicality, and that the class members will be adequately represented, and must additionally demonstrate that the action satisfies Rule23(b). The class action requirements of Rule 23 are mandatory. Thus, class certification requires that the prospective class representative satisfy the elements set forth in Rule 23(a), as well as the elements of Rule 23(b) (discussed in a separate article) be met. General Telephone Co. of Southwest v. Falcon, 457 U.S. 152, 102 S.Ct. 2364 (1982) (reversing class certification for failure to analyze Rule 23 requirements). This article discusses the typicality requirement of Rule 23(a).

Rule 23(a)(3) of the Federal Rules of Civil Procedure provides that a class action may not be maintained unless “the claims or defenses of the representative parties are typical of the claims or defenses of the class.” Unlike numerosity and commonality, which focus on the characteristics of the class, typicality and adequacy of representation (discussed separately) focus on the characteristics of the plaintiff representative of the class. Hassine v. Jeffes, 846 F.2d 169, 176 n.4 (3rd Cir.1988); Newberg on Class Actions, “Prerequisites for Maintaining a Class Action,” §3:13, pp.316-17 (4^th ed. 2002).

“The typicality criterion focuses on whether there exists a relationship between the plaintiff’s claims and the claims alleged on behalf of the class.” Newberg, at 317 (citing General Telephone Co. of Southwest v. Falcon, 457 U.S. 147, 102 S.Ct. 2364 (1982)). Newberg also states that “typicality of claims seeks to assure that the interests of the representative are aligned with the common questions affecting the class,” id., at 319 (footnote omitted).

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Posted In: Certification of Class Actions

CAFA (Class Action Fairness Act of 2005) Allows Removal of Suit Filed Prior to CAFA’s Effective Date by Defendant Added to Suit by Amendment After CAFA’s Effective Date Tenth Circuit Holds

On May 12, 2006, the Court of Appeals for the Tenth Circuit considered as a matter of first impression the question of “whether CAFA permits the removal of a class action filed before the Act’s effective date if the removing defendant was first added by amendment after the effective date.” Prime Care of Northeast Kansas, LLC v. Humana Ins. Co., 447 F.3d 1284, 1285 (10^th Cir. 2006). The district court had concluded that CAFA did not apply in such cases and remanded the matter to state court. The Tenth Circuit reversed, vacating the district court’s remand order and remanding the action to federal court.

The Tenth Circuit recognized that courts that have considered post-CAFA amendments to the operative pleading have reached one of three competing conclusions. In brief, those courts “have held that such amendments either (1) do not affect the pre-CAFA commencement date of the case; (2) affect the commencement date only if they do not relate back; or (3) affect the commencement date if they do not relate back or if they add new defendants to the case.” Prime Care, at 1286. The Court “adopt[ed] the second position.” Id. Specifically, “whether a post-CAFA amendment triggers a substantive right to removal under CAFA by the affected parties depends on whether the amendment relates back to the pre-CAFA pleading that is being amended.” Id., at 1289

Posted In: Class Action Fairness Act (CAFA), Class Actions In The News, Removal & Remand, Class Action Court Decisions

Defending Class Actions: Certification Under Rule 23 – Part II

The Adequate Representation Requirement of Rule 23(a)(4)

In defending a class action, the single most important motion facing a defendant is the plaintiff’s motion to certify a class. Rule 23(a) requires that the plaintiff demonstrate numerosity, commonality and typicality, and that the class members will be adequately represented, and must additionally demonstrate that the action satisfies Rule23(b). The class action requirements of Rule 23 are mandatory. Thus, class certification requires that the prospective class representative satisfy the elements set forth in Rule 23(a), as well as the elements of Rule 23(b) (discussed in a separate article) be met. General Telephone Co. of Southwest v. Falcon, 457 U.S. 152, 102 S.Ct. 2364 (1982) (reversing class certification for failure to analyze Rule 23 requirements). This article discusses the adequate representation requirement of Rule 23(a).

Rule 23(a)(4) of the Federal Rules of Civil Procedure provides that a class action may not be maintained unless “the representative parties will fairly and adequately protect the interests of the class.” At the end of this article, we briefly discuss issues of the criminal record and/or credibility of the proposed class representative, and the effect on class certification. In brief, such issues may be relevant because unlike numerosity and commonality, which focus on the characteristics of the class, typicality and adequacy of representation focus on the characteristics of the plaintiff representative of the class. Hassine v. Jeffes, 846 F.2d 169, 176 n.4 (3d Cir.1988); Newberg on Class Actions, “Prerequisites for Maintaining a Class Action,” §3:13, pp.316-17 (4^th ed. 2002).

On the other hand, this test focuses generally but not exclusively on the adequacy of counsel for the represented class, rather than the adequacy of the plaintiff representatives. In fact, the Eleventh Circuit recently summarized the four elements required for class certification under Rule 23(a) as “numerosity, commonality, typicality, and adequacy of counsel.” Hines v. Widnall, 334 F.3d 1253. 1255-56 (11^th Cir. 2003) (italics added).

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Posted In: Certification of Class Actions