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The class action Fairness Act of 2005 (CAFA), which industry and tort reformers fought so hard to get passed, may turn out to be not as tough on class action plaintiffs and their lawyers as either side had envisioned. The law, in effect for a year now, expands federal jurisdiction to encompass state class actions, but allows plaintiffs to bring state law claims with lower pleading standards to federal court. It also puts noncash settlements under new scrutiny, making cases harder for defendants to settle, and harder for plaintiffs’ lawyers to reach a quick settlement that would undermine other plaintiffs’ lawyers who are willing to invest time and money to pursue claims fully. And it imposes strict new requirements on defendants to report settlements to all state and federal law enforcement authorities with jurisdiction over the conduct at issue, thus affording them the opportunity to intervene and challenge settlements. Lawyers say that federal courts are taking the view that the law was written to protect consumers and society at large, rather than viewing class actions as ploys for plaintiffs’ lawyers to dig into corporate America’s deep pockets. Some attorneys note that CAFA, at least in the early stages, has shut down “magnet courts,” of which Madison County, Ill., has become a national poster child. It has also melded overlapping state class actions into multidistrict federal litigation. Threshold issues In a nutshell, CAFA, signed into law on Feb. 18, 2005, grants federal courts jurisdiction over class actions between parties in different states in which the value of the claims exceeds $5 million. But the statute also has proved a morass of ambiguity for courts attempting to deal with the threshold issues of which party has the burden of proving federal jurisdiction and the act’s effective date-what Congress meant by “commenced,” lawyers say. Wilson F. Green, a class action defense attorney at Battle Fleenor Green Winn & Clemmer of Birmingham, Ala., said that CAFA may turn out to be a blessing more mixed than what industry had worked and lobbied so hard to achieve. “It’s been effective in the sense that there are a lot more class actions in federal court. But from industry’s perspective, I’m wondering if corporate America got what it asked for,” said Green, who also teaches class action and arbitration law at the University of Alabama School of Law. Green called CAFA “a two-edged sword” in the sense that while more defendants are getting class action cases into federal court, it is much more difficult to settle them on terms financially favorable to defendants. “From the point of view of settling class actions, the question these days for defendants is ‘Should we remove the case [to federal court] under CAFA?’ and the answer to that is oftentimes not entirely clear. For cases filed after CAFA, the issue of ‘Can we remove a case?’ is generally yes, but the issue of ‘whether to remove’ is much more cloudy,” he said. For instance, abuses perceived in settlements structured to give class members noncash benefits such as coupons-while class counsel got hefty cash fees-had been one of the reasons that tort reformers wanted to pass the new law, but industry had viewed those arrangements favorably, Green said. Now, CAFA’s coupon-settlement provisions may make it more difficult to settle cases, and “the question even of what constitutes a coupon settlement is an open issue,” making it one that may be actively litigated as new cases start to settle, he said Elizabeth J. Cabraser, a class action plaintiffs’ lawyer and partner at Lieff Cabraser Heimann & Bernstein in San Francisco, said that CAFA has turned out to be “not quite as apocalyptic as either side predicted, but there are always unintended consequences.” Cabraser said she is pleased that there appears to be enough in CAFA to protect consumers and give federal courts full oversight responsibility, and that “it didn’t turn out to be the death knell for class actions as some may have hoped.” While the new law makes it easier for defendants to remove cases to federal court, one benefit for the other side is that it “permits plaintiffs to add state claims to federal complaints, and lets those with solely state-law-based tort and consumer claims opt for filing in the federal courts,” Cabraser said. CAFA also eliminates the possibility of fly-by-night plaintiffs’ attorneys settling cases out from under those in for the long haul, she said. Georgene M. Vairo, law professor and William M. Rains Fellow at Loyola Law School, Los Angeles, said this tort reform by another name may turn out not to be what tort reformers wanted. “What Congress is doing here through legislation is writing jurisdictional and procedural rules where it couldn’t get substantive tort reform passed. It may backfire,” Vairo said. CAFA’s working However, John H. Beisner, the lawyer who heads the class action defense practice in the Washington office of O’Melveny & Myers, said “the statute itself has done a fair bit” to address issues that Congress meant it to correct. One of the aims of the bill was to bring together various states’ overlapping class actions into single federal multidistrict litigation before one federal judge, he said. “The most dramatic effect of the bill is that many counsel are just going ahead and filing class actions in federal court,” mainly because “in litigation that is going to end up in a federal [multidistrict] proceeding, they want to make sure to have a seat at the table at the [multidistrict] proceeding,” Beisner said. CAFA also has shut down the so-called “magnet court jurisdictions” such as purportedly plaintiff-friendly Madison County, Ill., where, in contrast to the 82 class actions filed in 2004 and 36 class actions filed in the month and a half of 2005 before CAFA took effect, only 10 class actions were filed between Feb. 18 and Dec. 31 of last year, he said. But Vairo and Cabraser said that Congress was five to 10 years too late to address forum-shopping issues that the law meant to target, because the allegedly plaintiff-friendly “judicial hellholes,” particularly in Texas and the Gulf states, have reformed dramatically since they were so labeled. Cabraser said that putting class action practice in federal courts also should begin to demystify for federal judges the arcane nature of class actions and the class action abuses arising from state courts, Cabraser said. She noted a comment in a recent 8th U.S. Circuit Court of Appeals’ opinion granting the plaintiffs’ motion to remand to state court on the ground that a post-CAFA substitute class representative related back to the pre-CAFA complaint filed in state court. Plubell v. Merck & Co. Inc., No. 05-4217 (8th Cir.). Apart from the main holding, the Plubell court addressed Merck’s argument that CAFA was written to benefit defendants, she said. “The court said that if you look at the language of the act, it is designed to benefit plaintiffs and society at large by encouraging innovation and lowering consumer prices. That’s the first time I am aware of that a court addressed the misperception that CAFA is an anti-class action statute,” Cabraser said. Green of Battle Fleenor said that among the new settlement provisions, class members, state attorneys general and federal agencies with potential oversight of the conduct at issue must be notified of class action settlements under CAFA in federal courts, thus facilitating government challenge to a settlement when consumers are shortchanged. Activism among attorneys general, and their recent tendency to take concerted action on consumer-protection issues, will make it “interesting to see if the state attorneys general do anything about class action settlements in a concerted way,” Green said. “I haven’t seen any of that yet, but the stage is set for it.” Melissa Merz, spokeswoman for Illinois Attorney General Lisa Madigan, said, “We have discussed with other AGs’ offices how they are approaching this new law and we are developing our own policy.” Spokespeople for the attorneys general of Florida, Washington and several other states said their offices have reviewed settlements received through this new CAFA mechanism, but have as yet taken no action. Too early to tell? On the other hand, Gregory P. Joseph of Gregory P. Joseph Law Offices in New York said that it is too soon to tell what effect the law has had, and that “a lot of the issues are still in the law-review ether. “I think in the long run that the act will accomplish its end. In the short term, most of the cases filed before [the effective date of the law] will stay in state court, but a year is a very short period of time,” he said. “Class action cases can take five to 10 years to settle, and it takes years after they are settled to get the things unwound.” O’Melveny’s Beisner said he was surprised by the volume of litigation over when a case is considered to have “commenced” for the purpose of applying the new law. He added that the courts have just begun to tackle CAFA’s exceptions. “There are interesting issues developing about how the removal process works. Issues concerning the timing of removal, who can remove when, are pretty explicit in the statute, but are different from how they worked before, and it will take a while for the law to get sorted out,” Beisner said.

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