Seventh Circuit Holds Parens Patriae Suit Is Not Removable Under CAFA
Not long ago I posted about the Ninth Circuit joining the Fourth Circuit in holding that state attorney general representative lawsuits -- so-called "parens patriae" actions, with the AG acting as the "parent" of its people -- are not removable to federal court under the Class Action Fairness Act. Well, now the Seventh Circuit has joined the party. See LG Display Co., Ltd. v. Madigan, No. 11-8017, Slip op. (7th Cir. Nov. 18, 2011). Judge John Tinder wrote the opinion.
In LG Display, the Illinois Attorney General sued 8 manufacturers of LCD products, alleging that their pricing was unlawfully inflated in violation of the Illinois Antitrust Act ("IAA"). The suit asserted damages on behalf of the State for sales to the State, civil penalties to enforce the IAA, an injunction to prevent further violations, and damages (actual and statutory) on behalf of Illinois residents who bought the products. The State, of course, was the real party in interest for its own damages, and enforcement of the IAA. But where it was suing for damages to Illinois residents who bought the defendants' products, the State was not the real party in interest. Rather, the purchasers were. The State was merely acting as their representative.
The parens patriae doctrine developed at common law. It allows the State to act on behalf of the public generally. Notably, the State does not have a right at common law to act on behalf of an identifiable group of residents. The Seventh Circuit seemed to recognize this. See Slip op. at 4.
Thus, the only authority for the AG to act on behalf of an identifiable group of citizens -- like those who allegedly paid too much for LCD products -- was derived from the IAA, not common law. And the IAA makes it plain that an AG parens patriae suit on behalf of Illinois buyers is a form of class action. It provides:
"[N]o person shall be authorized to maintain a class action in any court of this State for indirect purchasers asserting claims under this Act, with the sole exception of this State's Attorney General, who may maintain an action parens patriae as provided in this subsection."
740 Ill. Comp. Stat. Ann. Yes, that's right: "no person shall be authorized to maintain a class action . . . with the sole exception of this State's Attorney General."
And yet, the Seventh Circuit held in LG Display that the AG's suit was not a "class action" or "mass action" that was removable under CAFA. How could it reach that conclusion, you ask? Formalism. The complaint did not mention Rule 23 or its state court equivalent and did not use the words "class action." Thus, it was not a class action. "Procedurally, Rule 23 and the IAA are entirely different beasts," it said. Slip op. at 5-6.
And in response to the argument that the State clearly was not the real party in interest on the claims of indirect purchasers, the court reasoned that so long as the State was the real party in interest in other causes of action, it would be improper to look at anything other than the complaint as a whole in determining whether the State is the real party in interest. Slip op. at 8-10. In doing so, it rejected the approach the Fifth Circuit employed in Louisiana ex rel. Caldwell v. Allstate Insurance Co., 536 F.3d 418 (5th Cir. 2008), which affirmed the denial of a motion to remand because -- on the restitution cause of action, at least -- the State was acting on behalf of policyholders, not in its own interest. "The Fifth Circuit rationalized its claim-by-claim approach as consistent with Congress' intent to broaden federal jurisdiction over class actions through CAFA," the Seventh Circuit explained. But "just because CAFA was meant to expand federal courts' jurisdiction over class actions, it does not follow that 'federal courts are required to deviate from the traditional "whole complaint" analysis when evaluating whether the State is a real party in interest in a parens patriae case.'" Slip op. at 10 (citations omitted).
The excessively formalistic approach reflected in the opinions of the Fourth, Seventh and Ninth Circuits on these issues creates the opportunity for precisely the sort of gamesmanship that Congress was trying to prevent when it passed CAFA. Despite the fact that these are representative actions that clearly assert the rights of identifiable groups of consumers, these opinions suggest that federal scrutiny can be avoided so long as these actions also include a cause of action or two that assert rights that are legitimately the State's interest.
