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The Florida Bar Journal
April, 2006 Volume 80, No.4
The Class Action Fairness Act of 2005

by John T. Kolinski

Page 18

The Class Action Fairness Act of 20051 was signed into law by President Bush on February 18, 2005. Pursuant to §9, it “shall apply to any civil action commenced on or after the date of enactment of this Act.”

The act is the culmination of more than a decade of effort by interested persons to reform the law relating to class action lawsuits. Although virtually everyone involved in the continuing debate concedes that class action lawsuits have been a powerful and productive tool in curbing abuses both by government (i.e., civil rights, prisoner rights, enforcement of federal statutes and regulations) and corporations (defective products and myriad forms of consumer fraud), there has been growing concern about abuses of the class action process. The act attempts to address and correct certain abuses without adversely affecting the positive role class actions have played in preserving freedoms and protecting consumers from a host of genuine “bad acts,” many of which might not otherwise have been confronted and corrected.2

The most obvious impact of the act is to allow a much larger number of class actions, previously barred from removal to federal court, to be removed by a defendant to federal court. Forum shopping and judge shopping have always been matters of concern to the overall administration of justice by our court system. State court judgments are entitled to full faith and credit under the U.S. Constitution. The wide fluctuation in approaches to resolving legal issues is to be expected from state to state, but is less acceptable and more problematic in areas where these decisions have impact and application beyond the state’s borders, as class action judgments and settlements frequently do. The old saying that “the railroad never loses a case to a farmer in New York City and never wins one in Kansas” helps explain both the reason removal to federal courts was originally instituted and its expansion in the class action setting under the act.

Plaintiffs might be rebuffed again and again in certain state court jurisdictions from having the desired class certified, but if they found even one state court judge who was favorably inclined to grant class certification, the success or even the anticipation of success in that class certification battle by plaintiff could “force” defendants to settle rather than risk a staggering adverse class action judgment. Such a judgment could have implications nationwide, far beyond the boundaries of any given state. Because of existing requirements that each plaintiff must meet the amount in controversy requirements for removal, the defendants were usually prevented from removing these cases to federal court even if plaintiffs did not name a nondiverse defendant. As will be discussed, the availability of removal to federal court has been vastly increased by the act in a variety of ways which now make state court judge shopping much more difficult and much less effective in all but truly localized class actions.

This article will explain what the act says; what it means to you and your clients; and alert you to certain issues which may arise based on its language, some of which may not have been intended by Congress, not that anybody has ever really understood what “Congressional intent,” means.3

The substance of the statute is set forth in §§3, 4, and 5.4 Section 3 provides for additional judicial scrutiny of so-called “coupon” settlements in which class members receive a coupon for discounts on goods or services from the settling defendants, as well as limitations on the manner in which attorneys’ fees may be calculated in such cases. Its provisions will be added as Ch. 114 of Part V of the U. S. Code at 28 U.S.C. §1711 through §1715.

Section 4 adds a new §(d) to 28 U.S.C. §1332 expanding original “diversity” jurisdiction in the federal courts to include certain types of class actions in which the aggregated claims of the class exceed $5,000,000. It provides guidance to the district courts regarding how to determine which actions are encompassed by the new rules and which class actions may and “shall” be remanded to state court pursuant to §5. It also creates a new category of “mass actions,” which further enhance the defendants’ prospects for removal of significant individual claims previously sought to be cloaked from removability.

Section 5 adds §1453 to Ch. 89 of Title 28 (28 U.S.C. §1453) entitled “Removal of class actions.” It expands removal jurisdiction for class actions in which the aggregated claims exceed $5,000,000. It also provides for federal appeal of district court decisions ordering and denying remand to state court of class actions removed pursuant to this newly created section.

Attorneys’ Fees Based on “Coupon” Settlements Restricted
Section 3 of the act addressed the concern that many class action lawsuits provided “windfalls” for the lawyers representing the plaintiff class but little or nothing of substance for the plaintiff class itself.5 Because of the binding nature of many class action judgments on the plaintiff class, defendant corporations had strong incentives to settle class action complaints quickly and as quietly as possible by paying “tribute” to plaintiff’s class counsel in exchange for a “coupon” settlement which cost the defendant practically nothing and ensured freedom from future lawsuits by people who more often than not had no idea they were part of the class in the first place.

After defining certain terms used throughout the chapter,6 §3 addresses “coupon settlements.”

Sec. 1712. Coupon settlements
(a) Contingent Fees in Coupon Settlements - If a proposed settlement in a class action provides for a recovery of coupons to a class member, the portion of any attorney’s fee award to class counsel that is attributable to the award of the coupons shall be based on the value to class members of the coupons that are redeemed.
(b) Other Attorney’s Fee Awards in Coupon Settlements - (1) In General - If a proposed settlement in a class action provides for a recovery of coupons to class members, and a portion of the recovery of the coupons is not used to determine the attorney’s fee to be paid to class counsel, any attorney’s fee award shall be based upon the amount of time class counsel reasonably expended working on the action. (2) Court Approval - Any attorney’s fee under this subsection shall be subject to approval by the court and shall include an appropriate attorney’s fee, if any, for obtaining equitable relief, including an injunction, if applicable. Nothing in this subsection shall be construed to prohibit application of a lodestar with a multiplier method of determining attorney’s fees. (Emphasis added.)
(d) Settlement Valuation Expertise - In a class action involving the awarding of coupons, the court may, in its discretion upon the motion of a party, receive expert testimony from a witness qualified to provide information on the actual value to the class members of the coupons that are redeemed.

There are three significant changes to the law encompassed by §3.

First, attorneys’ fees can no longer be based on the inflated potential cost to defendant of coupon redemption. Typically, only a small percentage—usually one to 10 percent—of settlement coupons are ever redeemed. The attorneys’ fees awarded must be based on the “redeemed” value of coupons, not the total possible value. It is unclear whether this requires or permits the court to wait for a period of time to allow redemption to occur before making this fee award or whether the court may “estimate” the redeemed value in advance based on expert testimony and other evidence. Assuming the latter to be a permissible approach as appears to be the case, it is unclear whether the court may award an “estimated” fee subject to a proviso for a fee adjustment, upward or downward, if the amount of redeemed coupons is greater or lesser than anticipated.

Second, plaintiff class attorneys cannot circumvent the “redeemed value” diminution in attorneys’ fees by deciding not to use “coupon value” to determine attorneys’ fees. If coupons are part of the award to plaintiff class, and if plaintiff class attorneys do not use the value of the coupons redeemed to determine the value of the result on which their fees are to be based, “any attorney’s fee award shall be based upon the amount of time class counsel reasonably expended working on the action.” Although the statute expressly does not disapprove the use of a lodestar (which sounds awkward but is not the same thing as expressly approving lodestar awards), the fees must be “time based” and not “value based” unless the “redeemed value” of the coupons awarded is used.

Third, Congress is plainly suggesting that it wants the courts to do a better job of protecting plaintiff class members rather than awarding unwarranted windfalls to plaintiff class attorneys. At the same time, however, Congress wants the federal courts to provide this laudable protection and “heightened scrutiny” despite the ever-increasing caseloads being handled by the federal judiciary, which the act has just increased, possibly dramatically. The act did not come with any additional federal district court judges.7

Attorneys’ Fees Must Correspond to Benefits

Sec. 1713. Protection against loss by class members
The court may approve a proposed settlement under which any class member is obligated to pay sums to class counsel that would result in a net loss to the class member only if the court makes a written finding that nonmonetary benefits to the class member substantially outweigh the monetary loss. (Emphasis added.)

This might well be called the “Martha Preston”8 clause. Ms. Preston received a $4 monetary benefit in a class action settlement involving mortgage services for which her escrow account was debited $80 in attorneys’ fees (plaintiff class attorneys recovered $8 million). When she sued to undo the settlement in Wisconsin where she lived, she was sued in Alabama by her attorneys for $25 million.

Courts have always been required to pass upon the fairness of class settlements. It is questionable how much §1713 adds to protection of class members by requiring the approving judge to explain the non-monetary benefit in the order. Despite the laudable intent of the provision, the court must continue to be able to rely upon the integrity and professionalism of respective counsel to evaluate and approve a class settlement unless the judge is willing to expend the tremendous time and energy required to independently review, analyze, and pass upon the fairness of the proposed settlement.

Plaintiff class counsel are, of course, responsible as fiduciaries to represent the class zealously within the bounds of the law and obtain the best settlement possible. This section of the act reflects a concern about the ability of plaintiff class counsel to perform this function when they stand to recover fees from the settlement in excess of the monetary sums received by class members. Thus, the court is directed to explain why the settlement is fair despite plaintiff class members sustaining a net monetary loss based on the nonmonetary benefits being received.

The pendulum, at least in the context of §1713, is arguably swinging back from the desirability of settlement versus trial at almost any cost to “fairness” to the class members. How do we ensure that fairness? Apparently, at least as embodied in this provision of this act, we no longer fully trust plaintiff class counsel to represent the interests of the “public,” as embodied in the class of persons they represent. This creates a void that must be filled by the judicial branch. The only other alternative is to appoint “neutral” “unbiased” “friends of the court” to analyze and approve the settlements, which accomplishes nothing more than to add another layer of bureaucracy of highly questionable value. As discussed below, the act requires notice of settlements to governmental agencies which may have an interest in reviewing and passing upon the settlements, but does not require these agencies to do anything in response to receipt of this newly required notification.

Favoritism Based on Geographic Proximity Prohibited

Sec. 1714. Protection against discrimination based on geographic location
The court may not approve a proposed settlement that provides for the payment of greater sums to some class members than to others solely on the basis that the class members to whom the greater sums are to be paid are located in closer geographic proximity to the court.

The premise of this section appears to be that some judges favor their local constituencies over persons farther removed from the courthouse. Assuming the legitimacy of this problem, it is questionable whether this provision is likely to alter their conduct significantly. If counsel were able to draft class settlements which favored certain class members “solely” based on geography, and either “sneak them by” federal judges or have the judge “wink” at them, will not these counsel and judges be able to accomplish the same thing using other means? In a toxic spill situation, geographic proximity to the spill may be a legitimate means of approximating the level of damage to the victims. As interpreted by this author, allocating damages based on geographic proximity to the occurrence, versus the courthouse, does not violate the act.

Moreover, if one of the principal motivating factors of the act is the preference for federal court adjudication over state court, presumably to mitigate precisely the type of geographic bias and forum shopping sought to be curtailed by this section specifically and this act generally, should not Congress be willing to trust the federal judiciary to be fair considering all relevant circumstances rather than tying the judiciary’s hands? Haven’t mandatory sentencing guidelines and other attempts to limit judicial discretion taught us that restricting the court’s ability to be “unfair,” almost always has the corresponding effect of limiting its ability to be “fair”?

“Appropriate” Federal and State Notification of Settlement

Sec. 1715. Notifications to appropriate Federal and State officials [as defined in subpart (a)]
(b) In General - Not later than 10 days after a proposed settlement of a class action is filed in court, each defendant that is participating in the proposed settlement shall serve upon the appropriate State official of each State in which a class member resides and the appropriate Federal official, a notice of the proposed settlement consisting of --
(1) a copy of the complaint. . .;
(2) notice of any scheduled judicial hearing in the class action ;
(3) any proposed or final notification to class members . . .; and (B) a proposed settlement of a class action ;
(4) any proposed or final class action settlement;
(5) any settlement or other agreement contemporaneously made between class counsel and counsel for the defendants;
(6) any final judgment or notice of dismissal;
(7)(A) if feasible, the names of class members who reside in each State . . .; or (B) . . . a reasonable estimate of the number of class members residing in each State and the estimated proportionate share of the claims of such members to the entire settlement; and
(8) any written judicial opinion relating to the materials described under subparagraphs (3) through (6).
(f) Rule of Construction - Nothing in this section shall be construed to expand the authority of, or impose any obligations, duties, or responsibilities upon, Federal or State officials.” (Emphasis added.)

Similar notice must be sent to federal and state depository regulators in cases involving financial institutions subject to their regulation.9 Final approval of the class settlement may not be issued earlier than 90 days after the last official required to be notified has been notified.10 If the required notices are not provided in accordance with the act, class members may refuse to comply with and to be bound by the settlement or consent decree in their case.11

The notice provision requires specified state and federal government regulatory authorities to be notified prior to the approval of a class settlement. The notion that such a notice requirement is going to strike fear and/or “fairness” into the hearts of the settling plaintiff class counsel to “get more” or defense counsel to “give more” to avoid having a state or federal regulatory body raise its eyebrows at the settlement is questionable. State and federal regulators are already “deep in alligators” and not looking for new swamps to drain.

Note that the provision expressly absolves these regulators from having to do anything upon receipt of these newly required notices.12 Nevertheless, there may be some salutary effect to requiring such notice. It will allow federal and state regulatory bodies to become involved in the settlement process if and when they decide an important issue is at stake. At a minimum, it will prevent such bodies from disavowing knowledge of a “bad” settlement after the fact.

Increased Federal Diversity Jurisdiction for Class Actions
Section 4 (New 28 U.S.C. §1332(d)) includes the following:

Sec. 4. Federal District Court Jurisdiction for Interstate Class Actions.
(a) Application of Federal Diversity Jurisdiction - Section 1332 is amended-- (1) by redesignating subsection (d) as subsection (e); and (2) by inserting after subsection (c) the following: (d)(1) In this subsection --
(A) the term “class” means all of the class members in a class action;
(B) the term “class action” means any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action;
(C) the term “class certification order” means an order issued by a court approving the treatment of some or all aspects of a civil action as a class action ; and
(D) the term “class members” means the persons (named or unnamed) who fall within the definition of the proposed or certified class in a class action .
(2) The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which--
(A) any member of a class of plaintiffs is a citizen of a State different from any defendant;
(B) any member of a class of plaintiffs is a foreign state or a citizen or subject of a foreign state and any defendant is a citizen of a State; or
(C) any member of a class of plaintiffs is a citizen of a State and any defendant is a foreign state or a citizen or subject of a foreign state.

Suffice it to say that with very limited exceptions, if any defendant wants a class action removed to federal court, assuming the aggregated value of the claim to plaintiff class members is $5,000,000 or more, “exclusive of interest and costs,” there will most probably be “original jurisdiction” under the expanded definition of “diversity” set forth in §4 of the act, now 28 U.S.C. §1332 (d), to remove the case.
Under “new” 28 U.S.C. §1332 (d)(2)(A), as added by the act, the “diversity” prong of original jurisdiction is satisfied if any plaintiff class member is a citizen of a state different from any defendant. Although it is possible to postulate situations when this will not be the case, for all practical purposes, 99 percent of all existing class actions have diversity using only this initial criteria. The act appears to assume this to be the case because it proceeds to outline circumstances in which a federal court may decline to exercise jurisdiction under paragraph 2, but only when relatively narrow criteria are satisfied.

(3) A district court may, in the interests of justice and looking at the totality of the circumstances, decline to exercise jurisdiction under paragraph (2) over a class action in which greater than one-third but less than two-thirds of the members of all proposed plaintiff classes in the aggregate and the primary defendants are citizens of the State in which the action was originally filed based on consideration of--
(A) whether the claims asserted involve matters of national or interstate interest;
(B) whether the claims asserted will be governed by laws of the State in which the action was originally filed or by the laws of other States;
(C) whether the class action has been pleaded in a manner that seeks to avoid Federal jurisdiction;
(D) whether the action was brought in a forum with a distinct nexus with the class members, the alleged harm, or the defendants;
(E) whether the number of citizens of the State in which the action was originally filed in all proposed plaintiff classes in the aggregate is substantially larger than the number of citizens from any other State, and the citizenship of the other members of the proposed class is dispersed among a substantial number of States; and
(F) whether, during the 3-year period preceding the filing of that class action, 1 or more other class actions asserting the same or similar claims on behalf of the same or other persons have been filed.

Pursuant to 28 U.S.C. §1332 (d)(3), although it will certainly be possible to craft plaintiff classes that fit within the confines of a single state and do not satisfy paragraph two’s broad diversity test, the federal district court is encouraged, if not required, to analyze the above factors, which expressly include “whether the class has been pleaded in a manner that seeks to avoid Federal jurisdiction.” So much for plaintiff being the “master of his complaint” and being entitled to plead only state law and not federal claims to avoid removal. While that principle is still good law in almost all other contexts, it is apparently no longer assured in the context of class actions. If you construct your class so as to avoid federal jurisdiction, the act expressly allows the court to consider that very fact to keep your case in federal court. There is no other plausible way to read that specific criterion in light of the statute’s stated purpose of expanding removal jurisdiction for class actions. It is difficult to argue that the court is supposed to use this factor in favor of remanding a case specifically alleged in such a way as to avoid federal jurisdiction, even though the bare words themselves would permit that interpretation.

Remember also that “citizenship” for purposes of diversity jurisdiction is not co-extensive with “residency.” Can persons affected by a localized toxic gas spill be separated into “plaintiff classes” under the act according to whether they are “citizens,” “noncitizen residents,” or merely tourists or visitors from out of state? Has the act, despite the best of intentions, inadvertently increased the number of required class actions necessary to address the wrongdoing of a mass tort or fraud based on the niceties of state citizenship?

Note that subsection (3) relates to situations in which one- to two-thirds of the plaintiffs are citizens of the state in which suit was originally filed together with the “primary defendants.” If more than two-thirds of all proposed plaintiff classes are citizens of the state in which the action was originally filed, we have to look to subsection (4).

(4) A district court shall decline to exercise jurisdiction under paragraph (2)--
(A)(i) over a class action in which--
(I) greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed;
(II) at least 1 defendant is a defendant-- (aa) from whom significant relief is sought by members of the plaintiff class ; (bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class ; and (cc) who is a citizen of the State in which the action was originally filed; and
(III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed; and
(ii) during the 3-year period preceding the filing of that class action , 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 persons; or
(B) two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.

This may actually be the most easily understood and applied section of the entire statute. Without parsing every word, it simply says that if the action is truly localized to one state, with most of the plaintiff class members and the principal defendants being citizens of the same state, and there haven’t been other similar class actions clogging the state courts over the same subject matter, the federal court “shall” decline to exercise jurisdiction and either dismiss the case without prejudice or remand it to state court. Note the irony that if a plaintiff decides to bring a class action in federal court, but the class action falls into subsection (4), the federal court is supposed to dismiss it and decline to exercise diversity jurisdiction even though defendants probably want to keep the case in federal court; plaintiff filed it there; and Congress has expressly recognized that most class actions are better handled in federal court.

Paragraph (5) expressly provides that paragraphs (2) through (4), above, shall not apply to any class action in which —“(A) the primary defendants are States, State officials, or other governmental entities against whom the district court may be foreclosed from ordering relief;” or “(B) the number of members of all proposed plaintiff classes in the aggregate is less than 100.” Do not overlook that the act is expressly limited to class actions of 100 persons or more.

Paragraph (6) reiterates that claims of individual class members shall be aggregated for purposes of determining whether the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs.

Paragraph (7) specifies that the “citizenship” of the members of the proposed plaintiff classes “shall be determined for purposes of paragraphs (2) through (6) as of the date of filing of the complaint or amended complaint, or, if the case stated by the initial pleading is not subject to Federal jurisdiction, as of the date of service by plaintiffs of an amended pleading, motion, or other paper, indicating the existence of Federal jurisdiction.”

Paragraph (8) makes clear that the new rules apply both “before or after the entry of a class certification order by the court with respect to that action.”

Paragraph (9) carves out a few classes of cases which are not governed by Paragraph (2) (which broadens diversity for class actions generally): Paragraph (2) shall not apply to any class action that solely involves a claim— (A) concerning a covered security as defined under 16(f)(3) of the Securities Act of 1933 (15 U.S.C. 78p(f)(3)) and section 28(f)(5)(E) of the Securities Exchange Act of 1934 (15 U.S.C. 78bb(f)(5)(E));
(B) that relates to the internal affairs or governance of a corporation or other form of business enterprise and that arises under or by virtue of the laws of the State in which such corporation or business enterprise is incorporated or organized; or
(C) that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security (as defined under section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1)) and the regulations issued thereunder).

Note the importance of the word “solely.” Plaintiff class lawyers who do not want the act to govern will endeavor to draw their class complaints narrowly within the confines of these exceptions. Defendants, assuming they prefer to be in federal court, may find themselves attempting to broaden the claims being made against them, as counter-intuitive as that may sound, to obtain the right of removal under the act.

Paragraph (10) provides that “[f]or purposes of this subsection and section 1453, an unincorporated association shall be deemed to be a citizen of the State where it has its principal place of business and the State under whose laws it is organized.”

From “Class Action” to “Mass Action”
Paragraph (11) defines and discusses “mass actions.”
(11)(A) For purposes of this subsection and section 1453, a mass action shall be deemed to be a class action removable under paragraphs (2) through (10) if it otherwise meets the provisions of those paragraphs.
(B)(i) As used in subparagraph (A), the term “mass action” means any civil action (except a civil action within the scope of section 1711(2)) in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact, except that jurisdiction shall exist only over those plaintiffs whose claims in a mass action satisfy the jurisdictional amount requirements under subsection (a).
(ii) As used in subparagraph (A), the term “mass action” shall not include any civil action in which--
(I) 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;
(II) the claims are joined upon motion of a defendant;
(III) 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
(IV) the claims have been consolidated or coordinated solely for pretrial proceedings the claims.
(C)(i) Any action (s) removed to Federal court pursuant to this subsection shall not thereafter be transferred to any other court pursuant to section 1407, or the rules promulgated thereunder, unless a majority of the plaintiffs in the action request transfer pursuant to section 1407.
(ii) This subparagraph will not apply
(I) to cases certified pursuant to rule 23 of the Federal Rules of Civil Procedure; or
(II) if plaintiffs propose that the action proceed as a class action pursuant to rule 23 of the Federal Rules of Civil Procedure.
(D) The limitations periods on any claims asserted in a mass action that is removed to Federal court pursuant to this subsection shall be deemed tolled during the period that the action is pending in Federal court. (Emphasis added.)

A “mass action” must have at least 100 plaintiffs. Assuming the requirements for a “mass action” are satisfied (“common issues of law or fact”), only those plaintiffs whose individual claims exceed the $75,000, amount in controversy requirement may be removed to federal court. This provision does not so much streamline class action practice (almost by definition it turns one state court action into a second removed federal court action with some, but not all of the original state court plaintiffs) as it reduces the ability of “clever” plaintiff counsel to defeat diversity jurisdiction by coupling individually removable claims together with claims which are not removable in circumstances where overall damages are less than $5,000,000.

The second prong of this provision appears to represent some sort of compromise among the competing factions who crafted this legislation to prevent most of the cases allowed to be removed under this newly created “mass action” category from thereafter being transferred to the multidistrict panel pursuant to 28 U.S.C. §1407. They may only be so transferred if a majority of the plaintiff “mass action” class requests such a transfer or the case is certified or proposed by plaintiffs to be certified pursuant to Fed. R. Civ. Pro. 23. The most effective tool nationwide to process and consolidate multiple class actions involving essentially the same type of claim was the multidistrict panel. This act, while endeavoring to provide further limitations and controls on class actions, expressly excludes the possibility of many of those very cases taking advantage of the multidistrict panel procedure unless plaintiffs agree to do so.13

Broadened Removability for Class Actions

Sec. 5. Removal of Interstate Class Actions to Federal District Court.
(a) In General - Chapter 89 is amended by adding after section 1452 the following:
Sec. 1453. Removal of class actions
(a) Definitions - In this section, the terms “class,” “class action,” “class certification order”, and “class member” shall have the meanings given such terms under section 1332(d)(1).
(b) In General - A class action may be removed to a district court of the United States in accordance with section 1446 (except that the 1-year limitation under section 1446(b) shall not apply), without regard to whether any defendant is a citizen of the State in which the action is brought, except that such action may be removed by any defendant without the consent of all defendants. (Emphasis added.)

Under pre-existing removal law, all defendants must join in removal. If any defendant did not want the case removed, he or she had veto power over removal even if all other defendants wanted to remove the case. Under the amended statute, any defendant will have 30 days from the time he or she is initially brought into the case within which to remove a class action under this statute, without needing the consent of other defendants.

This appears to be the impact of the amendment as to class actions even if the state court case is on the verge of trial and all other defendants have previously declined to remove the case. This scenario may be uncommon, given that most defendants prefer federal court, but should be noted nevertheless. Given the clearly expressed statutory intent that class actions be removable much more freely and readily than other diversity cases, it appears that federal district courts have limited, if any, discretion to remand a case simply because it had been pending for a long time in state court, assuming plaintiffs decide, for whatever reason, to add a defendant long after the case was filed and that defendant wants to remove the case to federal court.

Note also that a defendant citizen of the state in which the action is brought is not precluded from removing a class action under this section. In all nonclass action cases, a defendant citizen of the state in which the action is brought may not remove the action to federal court. Only out-of-state defendants have that right. Simply stated, FP&L could not previously remove any action brought against it in a Florida state court regardless of the amount in controversy or its diversity from the out-of-state plaintiff because its principal place of business is in Florida and, thus, it is a citizen of this state for diversity jurisdiction purposes. Moreover, by being joined as a defendant along with five or 10 other out-of-state defendants, FP&L’s joinder by plaintiff as a defendant in a Florida action prevented defendants from removing the action to federal court because FP&L defeats complete diversity. Under this act, FP&L and any other similarly situated defendant (Ford and GM in Michigan, for example) can now remove class actions brought against them in their own states where the aggregated amount in controversy sought by plaintiff class is in excess of $5,000,000, assuming the other minimal criteria of the Act are met.

Appeal of Order Granting or Denying Remand of Class Action Allowed
(c) Review of Remand Orders -
(1) In General - Section 1447 shall apply to any removal of a case under this section, except that notwithstanding section 1447(d), 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 7 days after entry of the order.
(2) Time Period for Judgment - If the court of appeals accepts an appeal under paragraph (1), the court shall complete all action on such appeal, including rendering judgment, not later than 60 days after the date on which such appeal was filed, unless an extension is granted under paragraph (3).
(3) Extension of Time Period - The court of appeals may grant an extension of the 60-day period described in paragraph (2) if (A) all parties to the proceeding agree to such extension, for any period of time; or (B) such extension is for good cause shown and in the interests of justice, for a period not to exceed 10 days.

There is an exception for cases involving federal securities laws and cases involving internal corporate governance according to the laws of the state of incorporation.14 Notice that the appeal is not only of the “expedited” variety, needing to be initiated within seven days of the order from which an appeal is taken, but it appears the appellate court can simply ignore it and deny it by the judicial equivalent of a “pocket veto.” The statute suggests that the federal appellate court may refuse to hear the appeal by using the permissive “may” rather than the mandatory “shall” in initially setting forth this “right” to appeal. Could this choice of words have been a mistake or inadvertent? Shortly thereafter the statute provides: “(4) Denial of Appeal - If a final judgment on the appeal under paragraph (1) is not issued before the end of the period described in paragraph (2), including any extension under paragraph (3), the appeal shall be denied.” (Emphasis added.)

This language appears to be ordering the federal circuit courts of appeal to deny the appeal if they do not get their order granting the appeal entered on time. Can Congress do that and remain consistent with separation of powers? It does not say the appeal shall be “deemed to be” denied without further action of the appellate court, although that is undoubtedly what was intended as well as how it is likely to be construed by the federal courts to avoid a separation of powers showdown.

This lack of clarity is heightened by the statute’s reference to the appellate court issuing a “judgment” regarding the appeal. Appellate courts affirm or reverse final judgments and other final and non-final orders entered by the lower courts, but they do not themselves enter judgments (e.g., “reversed and remanded with directions for trial court to enter judgment for plaintiff [or defendant, as the case may be]”). Yet this is precisely what they are directed to do by this statute with regard to appeals from nonfinal orders denying remand. This language appears to be an inadvertent choice of words intended to convey: “an order granting or denying/dismissing the appeal,” which, admittedly, is very similar to a “judgment.” It is simply difficult to envision a practicing trial or appellate lawyer using this phraseology.

It remains to be seen whether the Class Action Fairness Act of 2005 will result in meaningful improvement to the administration and settlement of class action lawsuits. There is a reason, embodied in the patch quilt provisions of the act, why the legislative process has long been compared, quite appropriately, to “making sausage.” However, with the help of the judiciary and the trial bar, the act presents a genuine opportunity to limit abuses and improve the handling of class action lawsuits without jeopardizing their important and beneficial place in our legal system and society.

1 P.L. 109-2
2 The Congressional “findings” embodied in §2 of the act include the following:
“(a) Findings - Congress finds the following:
“(1) Class action lawsuits are an important and valuable part of the legal system when they permit the fair and efficient resolution of legitimate claims of numerous parties by allowing the claims to be aggregated into a single action against a defendant that has allegedly caused harm.
“(2) Over the past decade, there have been abuses of the class action device that have -- (A) harmed class members with legitimate claims and defendants that have acted responsibly; (B) adversely affected interstate commerce; and (C) undermined public respect for our judicial system.
“(3) Class members often receive little or no benefit from class actions, and are sometimes harmed, such as where -- (A) counsel are awarded large fees, while leaving class members with coupons or other awards of little or no value; (B) unjustified awards are made to certain plaintiffs at the expense of other class members; and (C) confusing notices are published that prevent class members from being able to fully understand and effectively exercise their rights.”
See also 151 Cong. Rec. 999 (2005) and 151 Cong. Rec. 1086 (2005) for additional anecdotal evidence and discussion about the “intent” of Congress in passing the act.
3 See Cherokee Nation of Oklahoma and Shoshone-Paiute Tribes of the Duck Valley Reservation v. Leavitt, 543 U.S. 631 (U.S. 2005) (Scalia, J. concurring in part) (“I join the Court’s opinion except its reliance, ante, at 8, on a Senate Committee Report to establish the meaning of the statute at issue here. That source at most indicates the intent of one committee of one Chamber of Congress—and realistically, probably not even that, since there is no requirement that committee members vote on, and small probability they even read, the entire text of a staff-generated report. It is a legal fiction to say this expresses the intent of the U.S. Congress. And it is in any event not the inadequately expressed intent of the Congress, but the meaning of what it enacted, that we should be looking for. The only virtue of this cited source (and its entire allure) is that it says precisely what the Court wants.”)
4 Section 1. Short title; reference; table of contents; §2. Findings and purposes; §6. Report on Class Action Settlements; §7. Enactment of Judicial conference recommendations; §9. Effective date (discussed previously).
5 See remarks of Senator Herbert Kohk [D-WI]; Congressional Record, February 7, 2005, introducing §5.
6 “In this chapter:
“(1) Class - The term ‘class’ means all of the class members in a class action.
“(2) Class Action - The term ‘class action’ means any civil action filed in a district court of the United States under rule 23 of the Federal Rules of Civil Procedure or any civil action that is removed to a district court of the United States that was originally filed under a State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representatives as a class action.
“(3) Class Counsel - The term ‘class counsel’ means the persons who serve as the attorneys for the class members in a proposed or certified class action .
“(4) Class Members - The term ‘class members’ means the persons (named or unnamed) who fall within the definition of the proposed or certified class in a class action.
“(5) Plaintiff Class Action - The term ‘plaintiff class action’ means a class action in which class members are plaintiffs.
“(6) Proposed Settlement - The term ‘proposed settlement’ means an agreement regarding a class action that is subject to court approval and that, if approved, would be binding on some or all class members.”
7 “Or a raise!” I could distinctly hear that remark reverberating around the federal bench so I thought I should include it.
8 See note 5.
9 See §1715(c).
10 “(d) Final Approval - An order giving final approval of a proposed settlement may not be issued earlier than 90 days after the later of the dates on which the appropriate Federal official and the appropriate State official are served with the notice required under subsection (b).”
11 See §1715 (e).
12 “(f) Rule of Construction - Nothing in this section shall be construed to expand the authority of, or impose any obligations, duties, or responsibilities upon, Federal or State officials.”
13 Is it possible the judges comprising the multidistrict panel lobbied for this provision themselves?
14See §1715(d).

John T. Kolinski is a partner in Shutts & Bowen’s litigation department where he handles a wide variety of cases, including life, health and disability insurance claims, contract disputes, and personal injury claims. He received his law degree, cum laude, from the University of Michigan Law School. He is a member of the Florida and Indiana bars.

[Revised: 02-10-2012]