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While various forum selection issues continue to occupy the thoughts of federal and state judges, Congress is weighing in. In this column, I will briefly review the Class Action Fairness Act, which is likely to have been enacted in some form by the time this column goes to print. The reason for focusing on the act is that it is likely to affect drastically the forum-selection battle in the class action arena. The Class Action Fairness Act, S. 5, was introduced immediately upon the commencement of the 109th Congress, and is an important part of President George W. Bush’s tort reform efforts. The act, ironically named according to its detractors, is designed to thwart an important aspect of the forum-selection battle. The purpose of the act, as Senator Arlen Specter, R-Pa., put it, is “to prevent judge shopping to States and even counties where courts and judges have a prejudicial predisposition on cases.” 151 Cong. Rec. S999. The act now has considerable Democratic Party support, and is thus likely to be enacted. Let’s look at its essential provisions. First up: the dicey question of coupons Unquestionably, coupon settlements tend to provide class members with little of value, although plaintiffs’ lawyers justify such settlements because they have the effect of deterring corporate defendants from inflicting small harms on the consumers of their products. Nonetheless, the act includes a “Consumer Bill of Rights.” Section 3 of the act amends the federal judicial code to specify the calculation of contingent and other attorney fees in proposed class action settlements that provide for the award of coupons to class members. It also prohibits a federal district court from approving: (1) a proposed coupon settlement absent a finding that the settlement is fair, reasonable and adequate; (2) a proposed settlement involving payments to class counsel that would result in a net monetary loss to class members, absent a finding that the loss is substantially outweighed by nonmonetary benefits; or (3) a proposed settlement that provides greater sums to some class members solely because they are closer geographically to the court. In some sense, these provisions simply codify the best practices of many federal judges, as well as the requirements of Fed. R. Civ. P. 23, the federal class action rule. But now these principles will be enshrined in law. Section 4 is the heart of the act. It amends 28 U.S.C. 1332, the diversity- jurisdiction statute, and vests the federal district courts with original jurisdiction of any civil action in which the matter in controversy exceeds $5 million, exclusive of interest and costs, and that is between citizens of different states, or citizens of a state and a foreign state or its citizens or subjects. The purpose of this amendment is to abolish the complete diversity rule for class actions, and to clarify the jurisdictional amount in class action cases. By specifying that the amount in controversy exceeds $5 million, the act sidesteps the supplemental- jurisdiction issue that currently divides the federal courts. Almost all of the courts of appeals have had to decide whether a class action is within federal jurisdiction when the named plaintiff satisfies the $75,000-plus jurisdictional amount, but the class members do not individually meet the requirement. The approach that Congress takes is to eliminate the need to focus on the damages of individuals, and instead to look at the amount at issue essentially from the defendant’s viewpoint: If one aggregates all of the individual damages, and the amount exceeds $5 million, the case meets the new jurisdictional amount requirement. In order to obtain the consent of enough Democrats, and to give a nod to principles of federalism, Section 4 provides district courts with discretion to decline to exercise jurisdiction when a balancing of a number of enumerated factors suggests that the case is not appropriate for federal resolution. In the interests of justice and based on the totality of the circumstances, a district court can decline to exercise jurisdiction over a class action in which more than one-third but less than two-thirds of the members of the proposed plaintiff class in the aggregate and the primary defendants are citizens of the state in which the action was originally filed, upon considering whether: (1) the claims involve matters of national or interstate interest; (2) the claims will be governed by laws of the state where the action was originally filed or by the laws of other states; (3) the class action has been pleaded in a manner that seeks to avoid federal jurisdiction; (4) the action was brought in a forum with a distinct nexus with the class members, the alleged harm or the defendants; (5) the number of citizens of the state of original filing in all proposed plaintiff classes is substantially larger than the number of citizens from any other state and the citizenship of other proposed class members is dispersed; and, (6) during the three-year period preceding filing, one or more other class actions asserting the same or similar claims on behalf of the same people have been filed. Further, the act requires the district court to decline jurisdiction when (1) more than two-thirds of the members of the proposed plaintiff classes are citizens of the state where the action was originally filed, at least one defendant is a defendant from whom significant relief is sought, whose alleged conduct forms a significant basis for the claims asserted, and who is a citizen of the state where the action was originally filed, and principal injuries resulting from the alleged or related conduct were incurred in such state; and (2) during the three-year period preceding filing, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other people; or (3) two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the state where the action was originally filed. An important aspect of Section 4 is that it treats “mass actions” as class actions for the purpose of diversity jurisdiction and removal. Some state courts are rather lenient in allowing plaintiffs to join the claims of hundreds or thousands of plaintiffs in one case. The same economic considerations that motivate class actions and defendants’ unhappiness with them, are implicated in mass actions. One jury trial presents the same kind of “bet your company” scenario, and defendants thus feel pressured to settle such cases. A “mass action” is defined as any civil action in which monetary relief claims of 100 or more people are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact, and where the claims in the mass action satisfy the $5 million jurisdictional amount requirement. As with class actions, the act provides some exceptions: A case will not be deemed a mass action subject to federal jurisdiction if (1) all of the claims in the action arise from an event or occurrence in the state in which the action was filed, and that allegedly resulted in injuries in that state or in states contiguous to that state; (2) the claims are joined upon motion of a defendant; (3) all of the claims in the action are asserted on behalf of the general public (and not on behalf of individual claimants or members of a purported class) pursuant to a state statute specifically authorizing such action; or (4) the claims have been consolidated or coordinated solely for pretrial proceedings. A compromise produces a curious provision A political compromise, over the objections of much of the federal judiciary, resulted in a curious provision. Mass actions removed to federal court may not be transferred to any other court under the Multi-District Litigation Statute, 28 U.S.C. 1407, unless a majority of the plaintiffs in the action request transfer pursuant to � 1407. Thus, the plaintiffs maintain some control of the forum. As will be discussed below, the case would be removed to a district court in which the state court action was filed. Thus, plaintiffs filing mass actions would not have to worry about having their cases transferred for pretrial purposes to federal court in a different state. This provision may be good politics, but it will result in inefficiencies. Moreover, if federal judges hated the sentencing guidelines, one wonders how they will feel about these provisions. Further, one wonders how fast and adept plaintiffs’ lawyers will be in pleading around these various provisions. Section 5 of the act creates a broad new removal provision, 28 U.S.C. 1453. It provides that a class action may be removed to a district court in accordance with � 1446. Thus, the case must be removed to a federal court in the state in which the case is filed. However, � 5 also exempts class actions, and mass claims cases, from the one-year limitation for removal under � 1446(b). Section 5 also broadens removal rights in two other important ways. It also allows for removal even if any defendant is a citizen of the state in which the action is brought. And, a defendant is no longer required to obtain the consent of all the other defendants. Additionally, defendants have a broader right to seek review of remand orders. Although � 1447′s prohibition of remand orders generally applies, the act provides that 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 seven days after entry of the order. The act contains a number of other provisions. In keeping with its recent history of desiring active oversight of the federal judiciary, � 6 of the act directs the Judicial Conference of the United States to report on class action settlements, incorporating recommendations for best court practices to ensure fairness for class members and appropriate fees for counsel. Georgene M. Vairo is a professor of law and William M. Rains Fellow at Loyola Law School, Los Angeles. She can be reached at [email protected].

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