Supreme Court Keeps AG 'Class Actions' in State Court

Supreme Court Keeps AG 'Class Actions' in State Court

In January the U.S. Supreme Court held that parens patriae claims—claims brought by state attorneys general on behalf of their residents—could not be removed to federal court under the Class Action Fairness Act (CAFA). While this ruling purported to simplify the judiciary’s task in assessing questions of removal under CAFA, it ignored the negative practical implications for parties and attorneys, particularly corporate defendants that are litigating in the class action sphere.

The case the high court decided was Mississippi v. AU Optronics, Corp. [PDF], in which the Mississippi attorney general brought an action in state court against manufacturers of liquid crystal displays (LCDs), alleging a widespread price-fixing conspiracy. Mississippi’s complaint largely mirrored a number of consumer class action complaints filed against the same defendants in other jurisdictions following a 2006 U.S. Department of Justice investigation. The LCD manufacturers sought to remove the action under CAFA’s jurisdictional provision, which allows class actions and “mass actions” (in which the monetary relief claims of 100 or more persons are proposed to be tried jointly) to be removed to the more neutral federal courts.

The Supreme Court’s decision resolved a split among the circuit courts. In AU Optronics, the U.S. Court of Appeals for the Fifth Circuit held that the matter was removable as a mass action because the case was essentially a “class action in which the State of Mississippi is the class representative” for the many individual residents who were harmed. In contrast, the Fourth, Seventh and Ninth Circuits held that the real party in interest in parens patriae claims is the named plaintiff—the state—not the numerous state residents and, therefore, the cases do not qualify as mass actions.

The Supreme Court reversed the Fifth Circuit and determined that Congress must have intended the mass action provision of CAFA to apply to cases involving 100-plus named plaintiffs, not 100-plus named or unnamed real parties in interest. Since Mississippi was the only named plaintiff in AU Optronics, CAFA’s numerosity requirement was deemed not satisfied. The court explained that holding otherwise would lead to impractical judicial inquiries into the potential claims of hundreds or thousands of unnamed (and perhaps unknown) state residents to determine whether they involved common questions of law or fact and whether they satisfied the amount in controversy.

What the Supreme Court failed to address or even acknowledge, however, were the many real implications of its ruling on parties involved in class action lawsuits. Defendants facing class actions in federal court will now be forced to relitigate nearly identical issues in myriad state courts.

Generally, in these large antitrust matters, sibling suits that are filed in federal district courts or filed in state courts and removed to federal courts are consolidated into a single federal court on a multidistrict litigation (MDL) docket. The MDL allows defendants to address all discovery and other pretrial matters with a singular effort—a significant benefit in antitrust or other large class-action-type matters, which tend to involve a great deal of discovery practice. With the Supreme Court’s ruling, however, state attorneys general are empowered—indeed emboldened—to pursue these claims knowing they will be able to remain on their “home turf” of state court without fear of being transferred to the ostensibly less-state-friendly federal court. As a result, corporate defendants are denied the neutral forum CAFA sought to provide and are prevented from consolidating the matters in an MDL, leaving the corporations and their lawyers to juggle similar, but not identical, issues on multiple fronts.

This juggling act has implications not only for the amount of work and cost mass action defendants face, but also for the types of outside attorneys corporations may choose to hire to defend them. While traditionally large law firms have been recruited to tackle the behemoth MDL cases because of their sheer size and experience in similar matters, defendants will now need to expand their outside counsel teams to include firms with offices in multiple jurisdictions, or several smaller firms with more specialized state practices in order to adequately address these related state matters. Corporate counsel should, therefore, look for national coordinating counsel who has skills and experience coordinating efforts across firms and across jurisdictions.

Also troubling to corporate defendants is the fact that the AU Optronics ruling may lead to duplicate recovery by attorneys general on behalf of citizens who have already received compensation through related class action settlements. This concern was shared by several justices at oral argument, most notably Chief Justice John Roberts. He inquired whether anything prevented the attorneys general in every state from “sitting back and waiting . . . as private class actions proceed, and as soon as one settles or the plaintiffs’ class prevails, taking the same complaint, maybe even hiring the same lawyers” and filing their own independent suit in state court if any of the class members were residents of their state. These sentiments were ultimately absent from the Court’s opinion, which was authored by Justice Sonia Sotomayor, but they present practical problems for defendants.

Following the Court’s ruling, the class action bar may be further inclined to recruit state attorneys general to lend their names to complaints that mirror private class actions. Attorneys general, with limited time and resources, have an incentive to engage private plaintiffs’ lawyers to handle such litigation, and they may pursue a recovery from the same defendants on behalf of many of the same state residents already included in the original class action.

In order to account for this possibility, defendants who wish to settle private class actions may need to consider trying to negotiate settlements and releases from state attorneys general, or account for this possible duplicate recovery in their settlement discussions with private plaintiffs.

The Supreme Court may have simplified the individual judge’s task in assessing removal under CAFA; however, its ruling could have the opposite effect on corporate defendants and the state courts, which now may see an increase in the number of parens patriae actions. We will likely be dealing with the ramifications of this decision for some time.

Jane E. Willis is a Boston-based partner and is head of the business and securities litigation practice group at Ropes & Gray. She has 20 years of experience representing clients in complex business litigation and antitrust matters, including business disputes and class actions. Lauren A. Graber is a litigator in Ropes & Gray’s Boston office with particular expertise in complex commercial litigation.