Consumer Class Actions and Mass Torts : Class Action Lawyer & Attorney : J. Russell Jackson : Skadden Law Firm : Complex Class Actions : Consumer Class Actions & Mass Torts Law Blog

Reading National Consumers League v. General Mills, Inc., Civ. A. No. 09-10881 (HHK), Slip op. (D.D.C.  Jan 15, 2010) will make you feel as if you have fallen through the looking glass.  In this case, the National Consumers League ("NCL") sued General Mills for alleged misrepresentations about the cholesterol-lowering properties of Cheerios.  The NCL brought suit under DC's Consumer Protection Procedures Act ("CPPA") for declaratory relief, injunctive relief, the "greater of 'treble damages or statutory damages in the amount of $1,500 per violation,'" and attorneys' fees, expenses and costs.  Id. at 2.  General Mills removed the case to federal court pursuant to the Class Action Fairness Act. 

So far, so good.  Sounds positively ordinary, right?  Hang on.

The NCL made an emergency motion to remand, arguing that it had suffered no injury and thus lacked the Article III standing necessary to pursue a claim in federal court.

Yes, that's right.  Plaintiff stipulated that it had suffered no injury and lacked standing.

How can a plaintiff do that and avoid ruining its prospects of pursuing its claim in "state" court, too?  Indeed, don't state courts have standing rules that prevent the adjudication of "hypothetical" disputes and require a plaintiff to have injury and causation in order to establish a justiciable case or controversy?  Nearly all do.  Indeed, most people would have thought that DC courts, which are statutorily authorized to adjudicate only "cases or controversies" (D.C. Code sec. 11-705), have standing requirements as well.  See, e.g., Speyer v. Barry, 588 A.2d 1147, 1160 (D.C. 1991); Cmty. Credit Union Servs . v. Fed. Express Servs. Corp., 534 A.2d 331, 333 (D.C. 1987).

Unfortunately, however, the District of Columbia held last year that the District's courts are "not required to abide by any of the constitutional or traditional standing principles that apply in federal courts 'when the [D.C.] Council has provided the cause of action.'"  Archis A. Parasharami and Kevin Ranlett, The Nation's New Lawsuit Capital?  D.C. High Court Eliminates Standing Requirements for Consumer Protection Lawsuits, Threatening Flood of Abusive Litigation, vol. 9, no. 20, Mealey's Litigation Report:  Class Actions (Dec. 17, 2009) (discussing Grayson v. AT&T Corp.., 980 A.2d 1137 (D.C. 2009)).  The DC Council had amended the CPPA in 2000 to allow any person to bring an action on behalf of the general public.  Accordingly, the NCL was free to escape federal court by arguing that it had no injury because the District appears not require an injury for private attorneys general asserting CPPA claims.

The federal court in National Consumers League could have stopped there, but it didn't.  It also opined that the case was not removable as a "mass action" under CAFA because it fell into the exception of being a non-removable suit "brought on behalf of the general public."  Slip. op. at 8-9.  This conclusion seems suspect, however, given that the suit seeks -- in addition to injunctive and declaratory relief -- damages, which the court stated were not payable to the uninjured plaintiff, but instead only to those consumers who had been actually harmed.  Id. at 9-10.  At least with the damages portion of the suit, then, the plaintiff (NCL) is representing a subset of the general public:   Cheerios consumers who were actually injured by the defendant's alleged misconduct and can collect damages.  That sounds much more like a "mass action" or "class action" than a suit on behalf of the "general public."  Nevertheless, the court mandated remand to DC Superior Court.

The result in National Consumers League highlights the potential for a disturbing trend:  unscrupulous litigants may file CPPA claims in DC Superior Court seeking damages for other people and, by disclaiming any injury themselves, effectively avoid CAFA's clear purpose of having such suits adjudicated in federal courts.  That can hardly be what Congress intended when it enacted CAFA.  And I continue to find it difficult to believe that it really is the law in the District of Columbia.

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The Class Action Fairness Act allows for the removal of "any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of procedure."  But what happens where, once the case is removed to federal court, the federal judge determines the case cannot properly be a class action?  Should it be remanded to state court?

The Seventh Circuit recently answered this question with a resounding "no," thereby joining the First and Eleventh Circuits in concluding that "federal jurisdiction under the Class Action Fairness Act does not depend on certification."  Cunningham Charter Corp. v. Learjet, Inc., 2010 WL 199627, at *2 (7th Cir.  Jan. 22, 2010).

The court's conclusion is supported by the text of CAFA, which confers jursidiction on actions filed as class actions.  And it also is supported by the purpose of the statute, which is to prevent multistate class actions from being trapped in state court:

For if a state happened to have different criteria for certifying a class from those of Rule 23, the result of a remand because of the federal court's refusal to certify the class could be that the case would continue as a class action in state court.  That result would be contrary to the Act's purpose of relaxing the requirement of complete diversity of citizenship so that class actions involving incomplete diversity can be litigated in federal court.

Our conclusion vindicates the general principle that jurisdiction once properly obtained is not lost by developments after a suit is filed, such as a change in the state of which a party is a citizen that destroys diversity.

Id. 

As a result of Cunningham Charter, a defendant in a CAFA -removed case need not fear that it will be thrust back into state court once it wins on the issue of class certification.  At least in the Seventh Circuit.

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Previously, I had posted about how Dow Chemical was being sued by the same lawyers in waves of suits with roughly 99 plaintiffs so as to avoid the 100-person mass-action removal threshold under CAFA. 

On Friday, the Ninth Circuit Court of Appeals refused to assist Dow, allowing these alphabetically-grouped clumps of just-under-100-plaintiffs to maintain their suits in state court.  See Tanoh v. Dow Chemical Co., No. 09-55138 (9th Cir. Mar. 27, 2009).

The court rejected as inapposite two recent decisions that refused to allow plaintiffs to arbitrarily split their claims into separate timeframes to come in under CAFA's $5 million jurisdictional threshold.  See Freeman v. Blue Ridge Paper Prods., Inc., 551 F.3d 405 (6th Cir. 2008); Proffitt v. Abbott Labs., 2008 WL 4401367 (E.D. Tenn. Sept. 23, 2008).

The Tanoh decision can be the justification for lots of jurisdictional gamesmanship in the Ninth Circuit.  At least the court left open the possibility of removal if any of the cases are consolidated by the state court for trial.

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Loyal reader Michael Cessna from Lathrop & Gage in Kansas City turned me on to the First Circuit's recent decision in Amoche v. Guarantee Trust Life Ins. Co., No. 08-2094 (1st Cir.  Feb. 13, 2009), in which the court articulated the standards applicable to a defendant's removal of a consumer fraud class action.

In Amoche, it is plain that the plaintiffs were gaming the system to avoid removal to federal court by refusing to indicate how much they were seeking in their class action, while refusing to issue a binding disclaimer of the $5 million amount in controversy that is the floor for removal under the Class Action Fairness Act ("CAFA").  

Plaintiffs were people who -- as part of obtaining an automobile loan -- had been forced to buy a single-premium life insurance policy so that if they died, the loan would be paid off.  Plaintiffs sought to represent a class of such people who had paid off their loan early, but had not been refunded the unearned portion of the prepaid life insurance premium.  Plaintiffs sought money damages under breach of contract and breach of the covenant of good faith and fair dealing theories, restitution of unearned premiums, and injunctive relief that would require the life insurer to promptly refund unearned premiums to those who pay off loans early.

Plaintiffs had filed a class action in New Hampshire state court, the court had certified it, and plaintiffs had won summary judgment on their breach of contract claim, thereby establishing liability.  Plaintiffs then sought to amend their complaint to add consumers from other states.  But their complaint merely said that the defendant had harmed "thousands of class members" in amounts likely to be "about $200."  The state trial court granted plaintiffs the right to add to their class definition class members from 16 other states.  Plaintiffs then moved the amend the order to allow them to add between 10 and 20 other states.

The defendant was understandably concerned, and based on plaintiffs' representations, it removed the case to federal court, arguing that if the class contained as many as 25,000 people, at $200 a head that would be $5 million.  Plaintiffs filed a motion to remand, and defendants responded by showing that plaintiffs' claims in New Hampshire alone totaled $452,472.29.  The District Court granted plaintiffs' motion to remand, and the First Circuit affirmed, articulating some basic CAFA removal principles:

Because CAFA is both a removal and a jurisdictional statute, we start with some basic principles from those areas.  The party invoking federal jurisdiction has the burden of establishing that the court has subject matter jurisdiction over the case. . . .

We now hold that the burden of showing federal jurisdiction is on the defendant removing under CAFA.  This is also the conclusion reached by the seven other circuits that have considered this issue.

Slip op at 11 (citations omitted).

The court explained that although the question of subject matter jurisdiction is a question of law that is always reviewed de novo by a federal court, there may be instances where the district court has had to make factual findings.  Where that has occurred, the factual findings are reviewed for "clear error."

The court held that where the complaint is silent on the amount in controversy, defendants removing under CAFA must demonstrate a "reasonable probability" that the amount in controversy exceeds $5 million.  The court explained that "the reasonable probability standard is, to our minds, for all practical purposes identical to the preponderance of the evidence standard adopted by several circuits," but the "'reasonable probability language better captures the preliminary nature of this inquiry, reserving the preponderance of the evidence terminology for other conclusions."  Slip op at 14 (citations omitted).

The defendant had argued that it should be treated more like a plaintiff who chooses the federal forum, who only has to show that it is not a "legal certainty" that the amount in controversy is less than $5 million.  But the court rejected that argument as conflicting with the general rule that defers to the plaintiff's choice of forum. 

The First Circuit offered some "brief notes" on the standard that it articulated.  It noted that "[c]onsideration of this preliminary issue should not devolve into a mini-trial regarding the amount in controversy."  Moreover, the court should consider what evidence both parties have put on and which party has better access to relevant information.  In addition, evaluating the defendant's showing regarding the amount in controversy must be focused on the time of removal -- what happens afterward cannot divest the court of jurisdiction.  Finally, the likelihood of success on the merits is irrelevant to the amount in controversy.

Using these guidelines, the court concluded that the defendant had not shown a reasonable probability that the amount in controversy exceeded $5 million, and it affirmed remand of the case to state court, declaring that "[i]t is not unfair that [defendant] wait until the class allegations are more fully developed before attempting to remove, if there is a basis for removal, especially now that class actions under CAFA are exempt from the removal statute's one-year time limit."  Slip op. at 20.

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Previously I had written about a case in which banana plantation workers had divided themselves into multiple cases with less than 100 plaintiffs in order to avoid CAFA removal. 

The Ninth Circuit granted The Dow Chemical Company's petitions for permission to appeal in a number of those cases.  Nos. 08-80169, 08-80170, 08-80172, 08-80173, 08-80174, 08-80175, Tanoh, et al. v. The Dow Chemical Co. (9th Cir. Jan. 29, 2009).  Pursuant to CAFA's expedited appeal requirement, oral argument is set in those cases on March 10, 2009. 

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Reading some of the recent cases involving removal under the Class Action Fairness Act is an excellent reminder that venue really matters, and some lawyers really, really, really don't want to end up in federal court.  At all.  Ever.

Take, for example, Vanegas v. Dole Food Co., 2009 WL 213012 (C.D. Cal. Jan. 29, 2009).  In Vanegas, plaintiffs counsel had filed a series of lawsuits in Los Angeles state court on behalf of banana plantation workers from Costa Rica, Honduras, Panama, and Guatemala against a host of companies, alleging that the workers' exposure to pesticides had injured them.  They alleged a variety of products liability and fraud causes of action.  Each of the lawsuits had less than 100 plaintiffs, and none of them purported to be a class action.

The defendants removed the cases to federal court under the Class Action Fairness Act ("CAFA"), 28 U.S.C. secs. 1332(d) and 1453.  CAFA generally allows for the removal to federal court of class actions exceeding the sum of $5,000,000 and so-called "mass actions" of 100 or more individuals whose individual claims exceed $75,000.

Of course, breaking the lawsuits up into blocks of fewer than 100 plaintiffs was artful pleading designed to avoid removal to federal court.  The defendants argued that the court should look beyond such artifice and retain jurisdiction of the case. 

But the court declined to do so, positing:  "Nothing in CAFA suggests that plaintiffs, as masters of their complaint, may not 'file multiple actions, each with fewer than 100 plaintiffs, to work within the confines of CAFA to keep their state-law claims in state court.' . . . Furthermore, 'Congress expressly rejected the use of [defendants'] strategy by excluding actions in which claims have been "joined upon motion of the defendant" from the definition of "mass action."'"  Id. at *1 (citations omitted).

The court ultimately issued an order to show cause why the case should not be remanded to state court.

In reaching its result, however, the court distinguished a recent case in which the Sixth Circuit looked beyond the pleadings to prevent the plaintiffs from circumventing CAFA's removal provision.  In Freeman v. Blue Ridge Paper Products, Inc., 551 F.3d 405 (6th Cir. Dec. 29, 2008), some 300 riparian landowners brought public nuisance claims against a paper mill for allegedly polluting a river.  They fought valiantly to avoid CAFA removal to federal court.  Their complaint had expressly disavowed individual recovery of more than $75,000 and collective recovery of more than $5 million.  The defendant removed once, and was remanded to state court for failure to establish that the case met the amount in controversy requirement.

On remand, the plaintiffs sought to maximize their recovery while avoiding federal court by dividing the suit into 5 suits, each covering a successive 6-month time period and each being limited to $74,000 per individual and $4.9 million per suit. 

Concluding that "CAFA was clearly designed to prevent plaintiffs from artificially structuring their suits to avoid federal jurisdiction," the court refused to credit plaintiffs' artifices:

[E]ach of the five suits must be aggregated.  The complaints are identical in all respects except for the broken up time periods.  Plaintiffs put forth no colorable reason for breaking up the lawsuits in this fashion, other than to avoid federal jurisdiction.  In fact, plaintiffs' counsel admitted at oral argument that avoiding CAFA was the only reason for this structuring.  If such pure structuring permits class plaintiffs to avoid CAFA, then Congress's obvious purpose in passing the statute -- to allow defendants to defend large interstate class actions in federal court -- can be avoided almost at will, as long as state law permits suits to be broken up on some basis.

Id. at 407.

The court limited its holding to the situation where there is no colorable basis -- other than frustrating CAFA -- for dividing up the relief into separate time periods.  The court also recognized that plaintiffs generally can limit their damages to avoid federal jurisdiction, but held that "where recovery is expanded, rather than limited, by virtue of splintering lawsuits for no colorable reason, the total of such identical splintered lawsuits may be aggregated."  Id. at 409.

For an additional case interpreting CAFA liberally to avoid jurisdictional gamesmanship, see State of Louisiana v. Allstate Insurance Co., 536 F.3d 418 (5th Cir. 2008) (interpreting a so-called "parens patriae" action to fall within CAFA's definitions because the "real party in interest" was not the State, but the policyholders on whose behalf the State had sued).

It remains to be seen how closely courts will scrutinize pleadings in considering CAFA removal issues.  But one thing is clear from Vanegas and Freeman:  the creative writing ability of lawyers who want to avoid federal courts knows no bounds!

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