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Most of the largest mass tort cases in the federal courts over the past 10 years have been brought as non-federal-question class actions. These class actions have encompassed a broad range of mass tort litigation, including tobacco litigation and products liability. These suits do not involve issues of federal law, and the federal courts’ jurisdiction over these mammoth class actions instead is predicated on the federal diversity statute. A recent opinion by the U.S. Supreme Court, Free v. Abbott Laboratories, [FOOTNOTE 1]however, casts a cloud over the continuing viability of non-federal-question class actions in the federal courts. Last term, the Supreme Court granted certiorari on the question of whether a non-federal-question class action can proceed in federal court without every putative class member satisfying the diversity statute’s amount-in-controversy requirement. But the Supreme Court failed to resolve this issue by releasing an equally divided ruling — Justice Sandra Day O’Connor did not participate in the decision — leaving the vote split at four justices apiece. Attempts by Congress to clarify the jurisdictional basis for non-federal-question class actions also have not yielded results. Counsel and clients in many of the largest lawsuits in America thus face a very significant but often overlooked issue: whether a non-federal-question class action actually can proceed in federal court. This uncertainty creates a potential dilemma for plaintiffs and defendants alike. Should plaintiffs’ counsel continue to file their class actions in federal court, running the risk that, perhaps years later, a federal court may rule that the case never had a proper jurisdictional basis? And should defense counsel attempt to remove such cases to federal court or agree to global settlements, if the underlying jurisdictional basis for the lawsuit is questionable? Finally, for plaintiffs who file in federal court and for defendants who remove from state court, what rules govern the court’s determination of whether there is a proper federal jurisdictional basis for the class action? Before the Judicial Improvements Act of 1990, [FOOTNOTE 2]jurisdictional hurdles precluded the filing in federal court of almost all non-federal-question class actions. The main obstacle was the amount requirement under the federal diversity jurisdiction statute, 28 U.S.C. 1332. The Supreme Court held in Zahn v. International Paper Co. [FOOTNOTE 3]that in class actions based on diversity of citizenship, every putative class member must satisfy the amount-in-controversy requirement of � 1332. The requirement is $75,000; previously it was $50,000. The Zahnruling prevented plaintiffs from filing non-federal-question class actions in federal court because the great majority of putative class members’ claims in consumer fraud and market conduct suits fell below $75,000. Faced with the inability to bring these class-wide claims in federal court, plaintiffs’ counsel filed their class actions in state courts. A CHANGE OF COURSE IN 1990 This legal landscape changed dramatically in 1990 with Congress’ enactment of the Judicial Improvements Act, 28 U.S.C. 1367. The act states that, so long as a federal court has original jurisdiction over one plaintiff’s claim, then “the district courts shall have supplemental jurisdiction over all other claims that are so related … that they form part of the same case or controversy ….” [FOOTNOTE 4]Litigants argued that if one named plaintiff in a class action met the jurisdictional amount requirement, then the federal court had “original jurisdiction” over that party and could exercise supplemental jurisdiction over all other putative class members whose claims fell below the $75,000 jurisdictional bar. Since it appeared that the passage of � 1367 “overruled” Zahn, the Judicial Improvements Act of 1990 opened the floodgates of the federal courts to non-federal-question class actions. The proliferation of non-federal-question class actions in federal court accelerated further when the first two appellate courts to consider the issue confirmed that the Judicial Improvements Act had overruled Zahn. In 1995, the 5th U.S. Circuit Court of Appeals in Free v. Abbott Laboratories (In re Abbott Laboratories) [FOOTNOTE 5]held that Zahnhad been overruled by the enactment of � 1367. According to the 5th Circuit, the Judicial Improvements Act allowed federal courts to exercise diversity jurisdiction over the claims of all absent class members so long as one named plaintiff could meet the diversity amount-in-controversy requirement. [FOOTNOTE 6]The 7th Circuit soon followed with In re Brand Name Prescription Drugs Antitrust Litigation. [FOOTNOTE 7]With congressional passage of the 1990 Judicial Improvements Act and two appellate court rulings holding that only one named plaintiff — as opposed to every putative class member — needed to meet the diversity jurisdiction amount-in-controversy requirement, the filing of non-federal-question class actions in federal court continued unabated. Just two years ago, when it seemed resolved that Congress had opened the door to non-federal-question class actions to proceed in federal court, a split developed among the circuits on the issue. In 1998, in Leonhardt v. Western Sugar Co., [FOOTNOTE 8]the 10th Circuit looked behind the plain language of � 1367 and determined that Congress had never intended to overrule Zahn. One year later, the 3d Circuit in Meritcare Inc. v. St. Paul Mercury Insurance Co. [FOOTNOTE 9]sided with Leonhardt, leaving the appellate scorecard tied at 2-2. This result left litigants and their counsel with no definitive guidance on whether non-federal-question class actions could proceed in federal court. In response to this uncertainty, the Supreme Court last term granted certiorari in Free v. Abbott Laboratories [FOOTNOTE 10]to review the original appellate court ruling which had held that the Judicial Improvements Act overruled Zahn. [FOOTNOTE 11]But the Supreme Court issued a per curium opinion that affirmed the appellate court’s ruling by an equally divided vote. [FOOTNOTE 12]The Supreme Court’s equally divided affirmance provides no precedential value and simply affirms one specific appellate court ruling. [FOOTNOTE 13]Without any Supreme Court precedent, the split in the federal circuits continues. On Nov. 28, 2000, the 8th Circuit in Trimble v. Asarco Inc., [FOOTNOTE 14]sided with the 3rd and 10th circuits, holding that � 1367 did not overrule Zahn. Thus, depending on the particular federal circuit in which litigants find themselves, major lawsuits and settlements, sometimes in excess of a billion dollars, could be found to lack a proper jurisdictional basis. Settlements could be mooted, and new non-federal-question class action filings could be voided midstream by a federal appellate court or new Supreme Court ruling. Without Supreme Court clarification, only Congress can resolve the monumental issue of whether non-federal-question class actions can proceed in federal court. In the last congressional session, both the House [FOOTNOTE 15]and Senate [FOOTNOTE 16]considered legislation that would have federalized almost all class actions. Both the House and Senate versions of the bill expanded federal diversity jurisdiction to include a civil action in which any member of a proposed plaintiff class is a citizen of a state different from any defendant. [FOOTNOTE 17]Under this contemplated expansion of the federal courts’ diversity jurisdiction, almost any non-federal-question class action could proceed in federal court because, in almost any putative class action, at least one member of the putative class will reside in a state different from one of the defendants’ resident states. The major exception to federalization in both the House and Senate bills occurs when a substantial majority of the proposed class are citizens of a single state and the primary defendants also reside in the same state. In the face of veto threats by President Clinton, [FOOTNOTE 18]both the House and Senate legislation failed to pass during the last Congress. With a new Republican administration in place and the continued support of lawmakers, there will be continued congressional action on class action reform. WHAT TO DO? So what should counsel do, given the continued uncertainty of federal court jurisdiction for non-federal-question class actions? Plaintiffs’ initial attempts to file in federal court or defendants’ knee-jerk reactions to remove to federal court may not be so attractive if, at the end of the day, there never was any jurisdiction in that forum. The litigation strategies that used to be applied before and immediately after the filing of a non-federal-question class action thus must undergo a sea of change. What used to be taken for granted in most cases — a valid basis for federal court jurisdiction — is now open to dispute and can be used by plaintiffs or defendants as a focal point for strategic motion practice. Accordingly, counsel must consider an entirely new layer of strategic analysis when dealing with non-federal-question class actions. For plaintiffs, the strategic analysis must begin before the filing of the complaint. If plaintiffs want to file their non-federal-question class action in federal court, then they need to analyze the law of the circuit regarding the question of whether the Judicial Improvements Act overruled Zahn. Alternatively, if plaintiffs want a state court as their desired forum, then they still must analyze the federal precedent — before filing suit — to determine whether the defendants have a solid jurisdictional foundation for removal. For defendants, the strategic analysis must begin before they file their first pleading. If the plaintiffs filed their complaint in federal court, then the defendants must consider whether their strategic interests are better served in state court. This could mean filing a motion to dismiss based on lack of federal subject-matter jurisdiction. Alternatively, if the plaintiffs initially file a class action in state court, the defendants must immediately analyze the prevailing precedent to see whether removal to federal court is available. One outcome from this uncertain scenario is clear: Jurisdictional briefing and preliminary removal/jurisdictional motion practice will quickly become one of the largest battlefields in non-federal-question class actions. Moreover, for those courts that do allow non-federal-question class actions to proceed, additional jurisdictional issues and strategic considerations arise. At least one named plaintiff must satisfy the required $75,000 diversity jurisdiction amount. But most non-federal-question class actions involve mass tort or consumer fraud claims wherein each class member’s claim often falls below the $75,000 requirement. So how can the $75,000 jurisdictional requirement be satisfied in order for a non-federal-question class action to proceed in federal court? AGGREGATION IS KEY The key issue is aggregation: To what extent can punitive damages and attorney fees be aggregated to the named plaintiff as a basis to satisfy the $75,000 jurisdictional amount requirement for diversity jurisdiction? The case law is inconsistent on whether punitives and attorney fees can be aggregated. As for punitives, the 5th Circuit in Allen v. R&H Oil & Gas Co. [FOOTNOTE 19]held that the punitive damage claims of 512 joined plaintiffs should be attributed to each individual plaintiff for jurisdictional purposes. The court reasoned that Mississippi law considered punitive damages “fundamentally collective” because their purpose was to punish and deter wrongdoing for the benefit of society, and not for the benefit of any individual plaintiff. Because each plaintiff could have filed a separate claim for punitive damages, the fact that they filed jointly did not prevent them from attributing those damages to each plaintiff’s amount in controversy under � 1332. [FOOTNOTE 20] The Allendecision was limited, however, by the 5th Circuit’s later ruling in Ard v. Transcontinental Gas Pipe Line Corp., [FOOTNOTE 21]which refused to aggregate punitive damages. Likewise, the 11th Circuit in 1996 [FOOTNOTE 22]allowed aggregation of punitive damages but changed its mind on the issue in an en banc ruling this year. [FOOTNOTE 23] The case law also is split regarding the aggregation of attorney fees. The 5th Circuit in In re Abbott Laboratoriesheld that attorney fees can be aggregated for purposes of meeting the jurisdictional amount-in-controversy threshold. [FOOTNOTE 24]The 5th Circuit found that because the specific Louisiana statute awarded fees on behalf of the entire class to the class representatives, such fees could be used to determine whether those representatives met the jurisdictional amount in controversy. [FOOTNOTE 25] Although subsequent appellate court decisions in the 5th and 11th circuits have distinguished the Abbott Laboratoriesholding as limited to its facts, [FOOTNOTE 26]other district courts continue to apply the aggregation theory to meet the amount-in-controversy requirement under � 1332. [FOOTNOTE 27] The contradictory rulings on aggregation of punitives and attorney fees thus create an additional layer of uncertainty as to the viability of litigating a non-federal-question class action in federal court. Most circuits have yet to decide whether the Judicial Improvements Act overruled Zahn. Yet for those circuits or particular federal district courts that find only the named plaintiff needs to satisfy the $75,000 diversity jurisdiction threshold, an additional issue remains regarding the ability to aggregate punitives and attorney fees so that the named plaintiff can satisfy the amount-in-controversy requirement. Mr. Feldman is a management committee partner who specializes in class action defense at Chicago’s Sachnoff & Weaver. Mr. Pietrkowski is an associate at that firm and specializes in complex litigation. ::::FOOTNOTES:::: FN1 Free v. Abbott Laboratories Inc., 120 S. Ct. 1578 (2000). FN228 U.S.C. 1367. FN3414 U.S. 291 (1973). FN428 U.S.C. 1367. FN551 F.3d 524, 525 (5th Cir. 1995). FN6 Id. at 527-29. FN7123 F.3d 599, 607 (7th Cir. 1997); see also Stromberg Metal Works Inc. v. Press Mechanical Inc., 77 F.3d 928, 931 (7th Cir. 1996). FN8160 F.3d 631, 640 (10th Cir. 1998). FN9166 F.3d 214, 221-22 (3d Cir. 1999). FN10120 S. Ct. 525 (1999). FN11The implications of the expected ruling received national publicity. See, e.g., Marcia Coyle, “Key Class Action Rule At Stake: Justices to Decide When Supplemental Jurisdiction Possible,” The National Law Journal, at B1 (March 27, 2000). FN12 Free v. Abbott Laboratories Inc., 120 S. Ct. 1578 (2000). FN13 Mehlenbacher v. Akzo Nobel Salt Inc., 216 F.3d 291, 297 n.10 (2d Cir. 2000) (citing Neil v. Biggers, 409 U.S. 188, 192 (1972)). FN14 Trimble v. Asarco Inc., 232 F.3d 946, 961-62 (8th Cir. 2000). FN15H.R. 1875, 106th Congress (1999). FN16S. 353, 106th Congress (1999). FN17H.R. 1875, � 3(b)(1)(A); S. 353, � 3. FN18Liability Week, Vol. 14, Issue 37, 1999 WL 13960618 (Sept. 27, 1999). FN1963 F.3d 1326, 1333-35 (5th Cir. 1995). FN20 Id. at 1334-35; see also Knauer v. Ohio State Life Insurance Co., 102 F. Supp.2d 443, 449 (N.D. Ohio 2000). FN21138 F.3d 596 (5th Cir. 1998). FN22 Tapscott v. MS Dealer Service Corp., 77 F.3d 1353, 1358-59 (11th Cir. 1996). FN23 Cohen v. Office Depot Inc., 204 F.3d 1069, 1074-76 (11th Cir. 2000) (en banc). FN2451 F.3d at 526-27. FN25 Id.at 526-27 (citing La. Code Civ. P., Art. 595). FN26 See, e.g., Coghlan v. Wellcraft Marine Corp., No. 99-41443, 2001 WL 65596 at *5, n.5 (5th Cir. Jan. 26, 2001); Cohen, 204 F.3d at 1081-83; Davis v. Carl Cannon Chevrolet-Olds Inc., 182 F.3d 792, 796-97 (11th Cir. 1999). FN27 See, e.g., Knauer v. Ohio State Life Insurance Co., 102 F. Supp.2d 443, 449 (N.D. Ohio 2000).

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