United States: US Supreme Court Opens Loophole For Potential Influx Of State Court Suits

On January 14, 2014, the United States Supreme Court unanimously reversed the Fifth Circuit and held that the Class Action Fairness Act's ("CAFA") mass action provision did not provide for jurisdiction over a parens patriae suit filed by the attorney general of Mississippi.

This ruling has important consequences for corporations that face class action litigation because it effectively opens up a loophole in CAFA that will allow private class action lawyers to file what are essentially private class actions through state attorneys general and keep those cases in state courts that are viewed as plaintiff-friendly. Indeed, the state attorneys general that most often use the parens patriae device in this manner represent some of the same states whose court systems were subject to the class action abuses that led to CAFA's passage in the first place. Thus, this recent decision is likely to encourage an increase in the filings of such lawsuits, which have already experienced an uptick in recent years particularly in the pharmaceutical and financial industries as well as in the antitrust context.

The Mississippi v. AU Optronics Corp. decision.

The AU Optronics case was filed by the attorney general of Mississippi following the settlement of a private class action alleging essentially identical claims based on the defendants' alleged price fixing conspiracy in the liquid crystal display (LCD) market. The defendants removed the case to federal court arguing that the monetary recovery sought belonged to individual purchasers, not the state, and therefore the parens patriae suit was essentially a "mass action" involving the claims of "100 or more persons" that would be jointly tried. The district court rejected that argument and ordered the case remanded to state court, but the Fifth Circuit reversed. Based on its prior precedent in Louisiana ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418 (5th Cir. 2008), the Fifth Circuit held that the real parties in interest were indeed the individual purchasers that the attorney general sought to represent. Thus, CAFA's "mass action" provision—"a civil action . . . involving the monetary claims of 100 or more persons that is proposed to be tried jointly . . . ," 28 U.S.C. § 1332(d)(11)(B)(i)— applied to the complaint. Mississippi ex rel. Hood v. AU Optronics Corp., 701 F.3d 796, 799-800 (5th Cir. 2012). According to the Fifth Circuit, the claims and damages sought were:

  • monetary claims;
  • that belonged to more than 100 purchasers; and
  • the attorney general sought to have those claims tried jointly. Id. The Fifth Circuit did not address the alternative ground of whether the case was also removable as a class action under CAFA. Id.

In reaffirming its prior precedent, the Fifth Circuit declined to follow the reasoning of the Fourth, Seventh, and Ninth Circuits, which had rejected the Caldwell rule and adopted a rule known as the "whole case" approach under which any independent interest of the state is sufficient to bring the parens patriae action outside of CAFA's scope even if private individual monetary claims were also sought within the same complaint. See AU Optronics Corp. v. South Carolina, 699 F.3d 385, 393-94 (4th Cir. 2012) (holding CAFA mass action provision did not apply to parens patriae complaint because the state also had a sovereign interest at stake); Nevada v. Bank of Am. Corp., 672 F.3d 661, 671 (9th Cir. 2011) (similar principle); LG Display Co. v. Madigan, 665 F.3d 768, 772 (7th Cir. 2011) (similar principle).

The United States Supreme Court granted certiorari in the AU Optronics case in order to consider this circuit split regarding whether CAFA's mass action provision could apply to parens patriae actions filed by state attorneys general. On January 7, 2014, the Supreme Court reversed the Fifth Circuit in a unanimous ruling authored by Justice Sotomayor. Mississippi ex rel. Hood v. AU Optronics Corp., Case No. 12-1036 (U.S. Jan. 14, 2014). The Supreme Court's analysis focused on the specific text of the mass action provision, and in particular the requirement that mass actions involve the claims of at least "100 or more persons," which the Supreme Court equated with "plaintiffs" based on the context of that language and the similarity of the interchangeable usage of the terms "plaintiffs" and "persons" in CAFA and in Federal Rule of Civil Procedure 20 which deals with joinder of parties. Slip Op. at 6-7. The Supreme Court also concluded that reading the term "persons" to mean something other than "plaintiffs" led to incongruities in the statutory text because one of the requirements of the mass action provision was that the claims of the 100 or more "persons" must be proposed for joint trial with the "plaintiffs." Id. at 7. As the Court put it, "[i]t is difficult to imagine how the claims of one set of unnamed individuals could be proposed for joint trial on the ground that the claims of some completely different group of named plaintiffs share common questions. The better understanding is that Congress meant for the "100 or more persons" and the proposed "plaintiffs" to be one and the same." Id.

The United States Supreme Court also recognized an inherent problem with the defendants' reliance on the mass action provision, which—unlike the class action provision of CAFA—only provides for federal jurisdiction over claims that individually meet the $75,000 amount in controversy requirement. Id. at 8-9. As the Supreme Court correctly noted, it is unlikely that any of the claims in these cases would meet that threshold and thus would remain in state court anyway, and determining which claim is which would involve an "administrative nightmare that Congress could not possibly have intended." Id. at 8.

For all those reasons the United States Supreme Court determined that the plain reading of the mass action provision meant that the 100 or more persons must be named plaintiffs, not absent parties or real parties in interest. Id. at 9-10. The Supreme Court further reinforced its conclusion based on a discussion of the statutory context of the mass action provision, which, as noted above, it determined was intended to play a limited and specific role "as a backstop to ensure that CAFA's relaxed jurisdictional rules for class actions cannot be evaded by a suit that names a host of plaintiffs rather than using the class device." Id. at 10-11.

Finally, the Court also rejected the Fifth Circuit's decision to engage in a real party in interest inquiry. Id. at 11. While the Supreme Court recognized its prior precedents often look to the substance of the action and not merely labels in determining if jurisdiction exists in a variety of contexts, it held that such an inquiry was improper in this case because it was being misused to alter and trump the specific statutory text in a way that the Supreme Court held Congress did not intend. Id. at 11-14.

Potential Arguments to Close the Parens Patriae Loophole in Specific Cases

Although the Supreme Court's decision soundly rejected any argument that CAFA jurisdiction exists under the mass action provision for parens patriae actions, other potential arguments and strategies may remain to prevent such cases from being litigated in hostile state courts. Dentons lawyers have substantial experience with such complex removal issues and the defense of these parens patriae actions and stand ready to help guide your company around the potential traps and pitfalls that can significantly impact the outcome of such cases.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
30 Jan 2019, Other, Chicago, United States

Please join us on January 30, 2019, for the Fifth Annual Courageous Counsel Leadership Institute. This year's theme is "Risk and reward: Creating a culture that promotes innovation, change and growth.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions