This guest post was written by Sean P. Costello. Mr. Costello is an associate resident in the Atlanta office of Jones Day. This post is entirely his work. It, of course, represents only his views, and not the views of his clients or firm:
Last September, the Federal Judicial Center issued its “Second Interim Report” on the impact of the Class Action Fairness Act of 2005. That report, prepared by FJC senior researchers Thomas Willging and Emery Lee III, was big news. The National Law Journal ran a story on the findings, as did a number of “big city” legal newspapers.
The FJC report seemed to confirm what a lot of us had already assumed: federal class action filings (both original and removed cases) in the post-CAFA world were up compared with the pre-CAFA world. In fact, post-CAFA, removed class actions accounted for 23 percent of all class actions, compared with 18 percent in the period before CAFA. Diversity-based class actions post-CAFA accounted for 19 percent of all class actions, compared with 13 percent before CAFA.
Though an impressive piece of scholarship, that report was based on some pretty sketchy data. A mere four-and-a-half post-CAFA months of data were compared against several years of pre-CAFA data. But that was all the data that the FJC researchers had to work with.
Fortunately, the FJC researchers had no intention of stopping with four-and-a-half months of data. They promised another report covering an additional 12 months of post-CAFA data in Spring of ’07. CAFA geeks like me marked our calendars. The snow melted, spring arrived, and, true to its word, the FJC issued its “Third Interim Report” on CAFA’s impact on the federal courts on April 16. This new and improved report not only covers another 12 months or so, but also includes three additional district courts.
But no one seems to have noticed this new report. Odd, since the report has been available since May on the FJC website for anyone to download. Chalk it up to CAFA fatigue – please, not another CAFA symposium. Or perhaps the legal reporters who usually write about these sorts of things had been reassigned to cover Paris Hilton’s lock-up. Or maybe CAFA is just old news. Whatever the reason, the “Third Interim Report” hasn’t gotten any significant attention.
So, I thought I’d hit some of the highlights and offer some thoughts on what the data suggests. (The report itself really is worth a quick read on the plane or train.) Here goes.
First, good news. CAFA is working. There are more class actions in federal court based on diversity jurisdiction post-CAFA than there were pre-CAFA. A lot more. Pre-CAFA, on average, 27 such cases were filed per month. In the twelve months after CAFA, that number almost doubled, to 53.4 cases per month. In seven of the circuits studied, the number of diversity class actions was twice that of the pre-CAFA period.
It would be nice to compare the federal court numbers with some data on class action filings in state court, so that we could see whether CAFA’s putting the state-court class action racket out of business. But those numbers aren’t in the FJC report and I’m not aware of any reliable, systematic compilation of such figures. Perhaps someone should undertake that study.
Second, original filings account for a larger percentage of this increase than removals do. In this regard, the post-CAFA world is the reverse of the pre-CAFA world. Before CAFA, removals of diversity-based class actions generally outnumbered diversity-based class actions originally filed in federal court. Removals went from 147 in the January-June 2005 period, to 130 in the July-December 2005 period, and to 120 in the January-June 2006 period. Original class actions filings increased from 137 to 189 during that time.
The FJC researchers think that this suggests that plaintiffs see removal as a foregone conclusion. Plaintiffs save themselves the hassle and cost of a removal by filing in federal court to begin with. In addition, the FJC researchers seem to believe that filing in federal court in the first place gives the plaintiff’s lawyer some control over forum selection.
I’m not so sure. Unless the plaintiff’s lawyer intends to fight removal, filing in state court initially and leaving it up to the defendant to remove could actually save the plaintiff some money – after all, generally, filing fees are much lower in state court than in federal court; and the defendant has to pay the fee on removal to federal court. If the plaintiff doesn’t move to remand, there’s no extra cost. Besides, what self-respecting plaintiff’s lawyer doesn’t relish the thought of making the defense lawyer work a bit harder and foot the bill for the larger filing fee? After all, CAFA doesn’t require that plaintiffs file class actions meeting its jurisdictional requirements in federal court; it merely gives plaintiffs the choice.
I think the fact that original filings appear to be outstripping removals reflects other possibilities. For instance, it could suggest that plaintiffs’ lawyers aren’t as frightened of federal court as some of us might have thought (or hoped). Or it could suggest that the powerhouse, name-brand plaintiffs’ class action firms (i.e., the Cabrasers and Cohen Milsteins) – firms who know what they are doing in federal court and do it well – are responsible for an increasing share of federal class action filings. Maybe the FJC should take a look at which firms are doing the filing in future reports.
Third, diversity-based class actions alleging personal injury claims are down. Personal injury class actions reached their zenith in the January-June 2003 period, when there were 68 such filings. In January-June 2006, however, that number was down to 41.
When considered against the fact that personal injury cases as a whole have been increasing over the same time period, this decline is striking. According to FJC statistics, personal injury/product liability cases (including both class and individual actions) have gone from 10,510 in the twelve-month period ending June 30, 2001 to more than triple that number – 32,735 – in the twelve-month period ending June 30, 2005.
Two factors probably account for the decline in personal injury class actions in federal
court. For one thing, personal injury cases are class action dogs, and have been for a few years, a fact this blog has noted before. For another, to the extent a plaintiff’s lawyer is naive (or confident) enough to bring a true “personal injury” class action, that case could probably get into federal court without CAFA’s help, since showing that a named plaintiff’s personal injury claim exceeds $75,000 shouldn’t be too stout a showing. Once there, a motion for class certification would promptly be denied based on the litany of Castano-inspired case law.
The fact of the matter is that, as every defense lawyer knows, the personal injury class action is alive and well. It just goes by a different name. Plaintiff’s lawyers figured out that they could both avoid federal court and increase their odds of class certification by taking the “injury” out of the “personal injury” equation. They accomplished this by bringing no-injury class actions – cases where the plaintiff claims that a drug or product has a propensity to harm her or has harmed other people, though she claims no personal injuries herself – instead of class actions based on traditional tort or products liability theories. These types of “no-injury,” “unmanifested defect,” or “propensity to harm” cases are, instead, brought under state consumer protection and “deceptive trade practices” statutes. They’re basically the same old tort claims, just repackaged under state statutes and without the “and then I was physically injured” part. (The plaintiffs’ bar is skilled at giving the same old thing a different name, as evidenced by their recent name change from the “American Trial Lawyers Association” to the euphemistic “American Association for Justice” – while it is easy to be against trial lawyers, who can be against “justice”?) Which brings us to the fourth, and probably most significant, highlight for readers of this blog.
Fourth, state fraud claims account for the greatest increase in diversity-based class actions post-CAFA. They have tripled (!) in the months since CAFA. Why? Though the FJC doesn’t get into this level of detail in its report, I’d wager that this is because “fraud” encompass state consumer protection or “deceptive trade practices” claims brought under state statutes. These cases were notoriously difficult to remove in the pre-CAFA world due to the rule against aggregating damages, and CAFA obviously fixed that.
So, the no-injury consumer protection class actions will, for the most part, be in federal court. The question then becomes whether federal courts will be able to put the kibosh on these ridiculous claims once and for all. The FJC report obviously doesn’t tell us this, though the fact that original diversity-based class action filings outpace removals, coupled with the increase in “fraud”-based class actions in federal court, suggests that the plaintiffs’ bar isn’t afraid.
Only time will tell. But we on the defense side have a lot more going for us in federal court than we did in state court. There’s the usual litany – e.g., federal court gives us judges with life tenure and no reason to favor one side or the other; and we have Rule 23, which gives us some strict class certification requirements, a healthy body of precedent, and the ability to appeal a class certification decision (which you don’t get in many state systems). But there are other pros to being in federal court that could be just as significant, but that aren’t mentioned too often. For instance, we have rules of discovery that impose obligations on the plaintiffs as well as the defendants, and these rules can actually be enforced against plaintiffs with real consequences. We have the Seventh Amendment right to a jury trial, which arguably applies to state consumer fraud statutes, even if the state’s courts have concluded otherwise. Plaintiffs’ lawyers seem to prefer bench trials in “no-injury” cases – it is no doubt hard to persuade a jury that it should award an unseen class millions or billions of dollars for an unmanifested product defect based on the testimony of a perfectly healthy plaintiff.
Though hardly ever mentioned, there are two additional benefits to being in federal court: Daubert and the Federal Rules of Evidence. These may prove to be increasingly powerful tools against products liability cases masquerading as consumer protection class actions. There is a lot of nutty state precedent – which, depending on the court from which it came, the federal courts are supposed to follow – holding that consumer fraud requires causation but not reliance. So if the state’s Supreme Court has held that reliance isn’t required, a federal court can’t simply ignore that. But a federal judiciary accustomed to thinking inside the Daubert/federal rules box is more likely to look askance at the plaintiffs’ novel (i.e., absurd) injury and damages theories. A federal court will be less inclined to accept the sorts of things that pass for evidence of classwide causation, injury or damages than state court judges. At least we should expect federal courts to remember that plaintiffs have the burden of proof and to take that burden seriously. Fish-out-of-water theories like “fraud on the market” and “presumed reliance” should receive a colder reception in federal court than they have historically received in state court.
Since they will be dealing with the bulk of consumer fraud class actions, the federal courts, for all intents and purposes, will be making precedent in consumer fraud class actions, whether anyone cares to admit it. On balance, this should be good for defendants (or else the sponsors of CAFA have a lot of explaining to do), and should help bring some long overdue sanity to the litigation of no-injury, consumer protection class actions.
The FJC has promised future reports, including one this fall, examining the actual class action litigation process in federal court. In the meantime, federal courts are starting to issue some noteworthy decisions (on merits and class certification) in state consumer fraud class actions filed post-CAFA. These should give some guidance to how the reliance-v.-causation debate is playing out in federal court. Stay tuned.