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In the law of class actions, Feb. 18, 2005, marks the great divide. Actions commenced before that date remained governed by pre-existing law whose most notable feature sharply restricted the removal of class actions (indeed any lawsuit) based exclusively on state law from state to federal court. The usual obstacles included requirements that (at the very least) the cause of action of the named plaintiff be worth at least $75,000. More importantly, ordinary state lawsuits could not be taken to federal court on removal unless the requirement of complete diversity was met. So long as a single defendant and a single plaintiff were from the same state, the out-of-state defendant with deep pockets had to face the wrath of hostile state juries in state forums where established plaintiffs’ lawyers did repeat business. One year after the suit was filed, the in-state defendants who destroyed diversity could be conveniently dismissed, because the statutory period of removal had passed. It seems almost ironic that the removal provisions in the federal code should loom so large in modern complex litigation. But it is a sad commentary that the choice of forum turns out in too many cases to be the single most important determinant of litigation outcome. A complex antitrust or consumer fraud case that is worth millions of dollars in some state courts is widely perceived to be worth a tiny sliver of that amount in federal court. The restrictive rules of removal therefore were the major target of the Class Action Fairness Act (CAFA). Congress’ complex compromise concoction was in response to heated business pressure for a federal forum. One fix was relatively easy. On jurisdictional amount, CAFA provides that any class action (or mass action, which covers permissive joinder situations) can reach federal court if it is worth more than $5 million. But not all such actions can make it into federal court. CAFA’s basic intuition is that class actions whose center of gravity lies in a given state ought to remain there, while those whose center of gravity lies elsewhere should be shunted off into federal court at the request of the federal defendant. The tripartite scheme that implements this vision, however, necessarily injects a heavy dose of uncertainty into an already troubled area. If the initial class has one-third or fewer in-state claimants, then it may be whisked off to federal court. If it has more than two-thirds in-state claimants, then it stays put. If it has between one- and two-thirds in-state claimants, the federal court that gets the case has to go through a laundry list of factors intended to assess the relative strength of state and federal interests to see whether it keeps the case or sends it back. This scheme has two obvious disadvantages that only politicians could love. The first is that the generic descriptions used in class actions (all people who bought product X in period Y) do not lend themselves to easy counting, and the percentages could easily be revised on the strength of evidence that is only obtained after the initial determination on forum is made. Second, there is little excuse to create a litigation limbo for anyone caught in the middle category. Two categories, with only one boundary line, is surely preferable to a statutory no-man’s land in the middle. However awkward CAFA’s basic structure, no one should deny that it has had profound effects on the structure of litigation. Plaintiffs’ lawyers will often deliberately cap their damages below the $5 million threshold in order to avoid being shipped off to federal court. In addition, it now seems that neither side has any appetite to litigate the thorny questions that arise with the middle category. Many plaintiffs’ lawyers, anticipating removal, just file their suits in federal court to begin with. A voluntary sorting takes place that avoids litigating the beastly complexities of the act. And, of course, the most beneficial aspect of CAFA is not found in the litigated cases, but in the dubious lawsuits that die stillborn. CAFA then has a positive impact. But does it go far enough? I think not. The risks of marooning a large out-of-state corporation in state court is of importance not only in class actions but also in individual cases, such as the Vioxx litigation that generated the $26 million judgment in Angleton, Texas. CAFA does not touch these blockbuster cases. The entire legal structure, moreover, could be vastly simplified by recognizing that the removal issue dominates all diversity-type cases in state court. Scrap complete-diversity rule So here is a simpler and more sensible plan. Start by scrapping the statutory rule of complete diversity. Whenever an out-of-state defendant is sued in state court, the defendant can remove the case to federal court as of right. The risk that the foreign defendant faces is the same no matter whether it is sued alone or joined with some local merchant or pharmacist. Once the defendant goes into federal court, the plaintiff can then choose to bring the other in-state defendants along with the out-of-state defendant into federal court, or keep the remaining defendants in state court. Often, the only reason why the local defendants are sued in the first place is to block removal to federal court. Change the rule, and these parties will not be made defendants. The plaintiff who knows that the deep-pocket defendant gets to federal court as of right will not sue in state court. At this point, state courts might just clean up their acts to keep their business, as has happened recently in Mississippi. But until that day comes, these expanded removal provisions loom large in federal jurisdiction. Without them, the plaintiff gets to choose the forum. With them, that option goes to the defendant. Let’s hope that a thorough housecleaning at the state level means no one will much care about the difference. Richard A. Epstein, an NLJ columnist, is a professor of law at the University of Chicago Law School and a senior fellow at the Hoover Institution.

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