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Class Action Defense Cases-In re African-American Slave Descendants: Seventh Circuit Affirms Dismissal Of Class Action Alleging Corporate Complicity With Slavery But Reinstates Consumer Protection State Law Class Action Claims

Circuit Court of Appeal Agrees Federal District Court Lacked Jurisdiction Over Section 1982 Class Action Claims But Holds it Should Have Dismissed Claims Without Prejudice and Further Holds that Consumer Protection Class Action Claims Based on State Law – Over Which the Court had Supplemental Jurisdiction – Were Adequately Pleaded for Purposes of Motion to Dismiss

A total of ten (10) class action lawsuits were filed against various corporations “seeking monetary relief under both federal and state law for harms stemming from the enslavement of black people in America.” In re African-American Slave Descendants Litig., ___ F.3d ___, 2006 WL 3615027 (7th Cir. December 13, 2006) [Slip Opn., at 1]. The Judicial Panel for Multidistrict Litigation (MDL) transferred the actions to the Northern District of Illinois for pretrial purposes pursuant to 28 U.S.C. § 1407, , where all plaintiffs but one filed a consolidated class action complaint. Id., at 1-2. Defense attorneys moved to dismiss the class action complaints; the district court granted the motion to dismiss based on the political-question doctrine, lack of standing and thus lack of federal jurisdiction, the expiration of the statutes of limitation, and failure to state a claim. Id., at 5. Surprisingly, the Seventh Circuit reversed.

The Seventh Circuit summarized that “[t]he suits are a series of mostly identical class actions on behalf of all Americans descended from slaves with whom one or more of the defendants or their corporate predecessors may have been directly or indirectly involved.” Slip Opn., at 3. The Circuit Court further summarized the class action allegations as follows: “The defendants are companies or the successors to companies that provided services, such as transportation, finance, and insurance, to slaveowners. At least two of the defendants were slaveowners; the predecessor of one of the bank defendants once accepted 13,000 slaves as collateral on loans and ended up owning ,1250 of them when the borrowers defaulted, and the predecessor of another defendant ended up owning 346 slaves, also as a consequence of a borrower’s default. Even before the Thirteenth Amendment, slavery was illegal in the northern states, and the complaint charges that the defendants were violating the laws of those states in transacting with slaveowners. It also claims there were occasional enslavements long after the passage of the Thirteenth Amendment and that some of the defendants were complicit in those too. By way of relief, the complaint seeks disgorgement to the class members of the profits that the defendants obtained from their dealings with slaveowners.” Id., at 4.

The federal claims in the class action complaint were premised on 42 U.S.C. § 1982. Slip Opn., at 4. Jurisdiction over plaintiffs’ nonfederal claims, however, was problematic: “A frivolous federal law claim cannot successfully invoke federal jurisdiction. . . . So it cannot provide a perch on which to seat nonfederal claims in the name of the federal courts’ supplemental jurisdiction . . . . And very few of the plaintiffs have a nonfrivolous claim under section 1982.” Id., at 4-5 (citations omitted). Because diversity jurisdiction also existed for all but one of the plaintiffs, the Circuit Court held that federal court jurisdiction exists (but dismissed for lack of jurisdiction the claims of the nondiverse plaintiffs). Id., at 5.

As noted above, ; the district court granted the motion to dismiss based on the political-question doctrine, lack of standing and thus lack of federal jurisdiction, the expiration of the statutes of limitation, and failure to state a claim. Slip Opn., at 5. The Seventh Circuit observed that if the district court’s jurisdictional analysis was correct, then it should have dismissed the class actions without prejudice and refused to reach the merits of the complaints. Id.

Beginning with the political question doctrine, the Seventh Circuit concluded that it did not apply because “the plaintiffs have been careful to case the litigation as a quest for conventional legal relief,” Slip Opn., at 6, and the judiciary was equipped to grant the relief requested, if such relief proved to be warranted, id., at 7. The Circuit Court agreed, however, that plaintiffs lacked standing to sue.

The problem with plaintiffs’ claims is that they sought relief for injuries that they did not suffer. In the words of the Circuit Court, “there is a fatal disconnect between the victims and the plaintiffs.” Slip Opn., at 8. The Seventh Circuit explained, “When a person is wronged he can seek redress, and if he wins, his descendants may benefit, but the wrong to the ancestor is not a wrong to the descendants. For if it were, then . . . statutes of limitation would be toothless. A person whose ancestor had been wronged a thousand years ago could sue on the ground that it was a continued wrong and he is one of the victims.” Id. The claim that there would have been less slavery but for defendants alleged violations of state slavery laws suffers similar defects: “this causal chain is too long and has too many weak links for a court to be able to find that the defendants’ conduct harmed the plaintiffs at all, let alone in an amount that could be estimated without the wildest speculation.” Id., at 9. The Seventh Circuit also rejected claims that defendants were liable because some plaintiffs alleged to have remained “enslaved” into the 1960s. Slip Opn., at 12. This theory was not premised upon defendants’ affirmative misconduct but, rather, “that they took no steps to free him.” Id., at 13. The Court refused to find “any kind of Good Samaritan duty to eliminate a violation of the Thirteenth Amendment committed by someone else.” Id.

Based on its detailed analysis, the Seventh Circuit affirmed the district court’s dismissal of the class action complaints for lack of standing, but “there are three qualifications.” Slip Opn., at 13. First, those plaintiffs who allege that they are suing as lawful representatives of their ancestors’ estates have standing and represent injured parties, id.; however, “it would still be impossible for them to prove injury” and their claims would be barred by statutes of limitation, id., at 13-14. Second, plaintiffs’ state law consumer protection claims that defendants “concealed their involvement in slavery” for the purpose of defrauding customers into doing business with them, thereby tricking members of the plaintiff class into purchasing their products and services, adequately alleges fraud for purposes of surviving a motion to dismiss. Id., at 14-15. The Circuit Court did not state that the claims had merit, it merely held that the district court erred in barring the claims “at the threshold.” Id., at 15. Finally, for reasons we do not discuss here, the Court addressed the specific claims of the “Hurdle plaintiffs,” and held that the district court’s further involvement in that action was limited to “pretrial proceedings under 28 U.S.C. § 1407.” Id., at 15-16. The district court’s order of dismissal was amended to be without prejudice, and was affirmed as modified. Id., at 16.

NOTE: The Seventh Circuit held that a transferee court may rule on dispositive motions, distinguishing Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998), on the grounds that Lexecon precluded transferee court from retaining centralized actions for purposes of trial as well as pretrial, but ruling on dispositive motions was a normal pretrial function of a federal court. In re African-American Slave Descendants, at 2-3.

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