Class Action Fairness Act Achieves Goal, but With a Catch

Marcia Coyle

The National Law Journal

Although the federal Class Action Fairness Act is achieving its goal of shifting the typical multistate class action from state court to federal court, a "paradoxical" result is a surge in single-state class actions designed to avoid the federal law's removal provisions, according to a recent study.

"We've seen a lot of those [single-state class-action filings]," said Andrew Tulumello, vice-chairman of the class-action group in the Washington office of Los Angeles-based Gibson Dunn & Crutcher. "You will get a lot of cases styled: All Citizens of New Jersey, for example, or All Consumers in California."

The single-state actions also are usually staggered, he added, explaining that the California action may be filed one month and five months later, an Illinois action will be filed. "It's sort of a back door effort to involve multiple states and to avoid a removal to federal court."

Tulumello's assessment is based on data gathered by his firm and reports of the Federal Judicial Center, which are analyzed in the firm's 2008 Year-End Class Action Update.

Federal Judicial Center statistics suggest that new class actions filed in or removed to federal court increased by 72 percent between 2001 and 2007, or about 4,000 to 5,000 annually as of mid-2007 (the last period for which data are available).

That trend and the growth in single-state filings are likely to increase in 2009, according to the firm, which has one of the busiest federal class-action practices in the country.

To examine state court class-action filings, the firm collected statistics from the Los Angeles Superior Court -- a "very hot" court for the plaintiffs' bar, said Tulumello -- and used it as a bellwether.

"The statistics show a fairly significant increase in just state class actions," he said. "I think the idea that CAFA's only impact is shifting cases from state to federal courts is not the full picture."

In Los Angeles, class-action filings have increased by 55 percent in the past three years -- from 516 filings in 2005 to 801 filings in 2008, according to the firm. Los Angeles has a designated panel of complex case judges who are very experienced in handling class action and other complex litigation, and this program has proved extremely popular among plaintiffs and defendants. Notably, removals occurred in only 12 percent of the class cases filed in Los Angeles County Superior Court in December 2008.

The firm also has seen a surge in three types of class actions: labor and employment, consumer fraud and products liability.

"That trend will continue, as a new administration and Democratic Congress enact laws -- such as the Lilly Ledbetter Fair Pay Act -- that expand or create new legal remedies, and cut back on or repeal federal statutes and administrative regulations that have in the past preempted state-law based suits," according to the analysis.

Plaintiffs' theories also are shifting, said Tulumello. As federal courts have made it more difficult to get a class certified, plaintiffs are relying more heavily on economic torts, he said, where the theory is there was some deception in the way a product was advertised or marketed.

"They think those types of cases are easier to certify than where the claim is actual injury," he said. "We call these economic torts or no-injury torts."

The class-action update also notes that circuit splits continue to develop on issues concerning Federal Rule of Civil Procedure Rule 23 and class certification but that the U.S. Supreme Court has yet to take up the more pressing questions.

In the past five terms, according to the firm update, the Supreme Court has decided seven tax cases, six Employee Retirement Income Security Act cases, five cases under Title VII of the Civil Rights Act of 1964, and five cases under the Age Discrimination in Employment Act. "However, in the last 35 years, the Supreme Court has decided fewer than a dozen cases involving core class-action issues."

Tulumello said, "When you look at the volume of class-action cases in federal courts and how frequently Rule 23 issues come up, there is a mismatch between what the Supreme Court has done in this area and what federal courts are doing every day. There are a lot of open issues."