United States: Q&A With Tony Eliseuson: Parens Patriae Actions Under CAFA

Last Updated: January 30 2014
Article by Anthony T. Eliseuson

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. State of Mississippi ex rel. Jim Hood v. AU Optronics Corp., Case No. 12-1036 (U.S. Jan. 14, 2014).

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 plaintiff lawyers to file what are essentially private class actions through state attorneys general and keep those cases in state courts that those attorneys view 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. 

In this interview, Tony Eliseuson, a litigator and trial lawyer who focuses on complex commercial disputes and class action defense, including the same CAFA removal issues involved in AU Optronics Corp., outlines the key results of the Supreme Court's decision and likely implications for future litigation. Tony was the primary drafter of an amicus curiae brief that was submitted in support of the defendants in AU Optronics. 

» Read more about the ramifications of  the Supreme Court's ruling in Mississippi v. AU Optronics Corp. 

The Class Action Fairness Act played a big role in this case. What is it?

The Class Action Fairness Act of 2005 or "CAFA" as it is more commonly known, expanded federal jurisdiction over many large class-action lawsuits and mass actions filed in state courts in the United States. Business groups and tort reform supporters had lobbied for the legislation, arguing that it was needed to prevent the significant class action lawsuit abuse that was occurring in certain state courts.

Subject to certain statutory exceptions, essentially any putative class action that seeks over $5 million in the aggregate for the class is subject to federal jurisdiction as long as there is minimal diversity between any defendant and any named or absent class member.  Important to AU Optronics Corp., CAFA also contains a "mass action" provision that extends federal jurisdiction to certain suits and certain claims that are brought by a large number of plaintiffs or persons (more than 100) but that are not filed as putative class actions under Rule 23 of the Federal Rules of Civil Procedure or a state court analogue.  The mass action provision was intended to prevent a loophole in CAFA that could occur if suits were filed by naming all class members within the complaint itself rather than a class action.  The defendants in AU Optronics exclusively relied on that mass action provision in arguing for federal jurisdiction.

What issues were at the core of this case?

At issue was whether federal jurisdiction exists under CAFA for suits labeled as parens patriae actions and brought by a state or a state attorney general, even if the claims asserted included those seeking monetary damages for a group of specific private individuals. Historically, a parens patriae action is one in which a state seeks to vindicate its sovereign or quasi-sovereign interest rather than pursuing individual claims that happen to be possessed by the citizens of the state.  An example of a true parens patriae suit is where a state seeks to stop a public nuisance that is negatively impacting the state or where a state seeks to protect its right to fully participate in the federal system vis-à-vis other states.  Traditionally, a suit that asserts the monetary claims belong to the citizens of the state is not an appropriate parens patriae suit.

In recent years, however, a troubling trend has developed for corporate defendants as more and more state attorneys general have essentially lent out their offices to private class action plaintiff counsel who often will combine claims that may in fact belong to the state, and thus appropriate parens patriae suits, with monetary claims that belong to all or some of the citizens of the state individually.  Thus, these suits are essentially private class actions in everything but name, and the allegations often mirror pending private class actions, which are often being pursued by the same private attorneys retained to represent the state via contingency fee retainer agreements. 

Indeed, the AU Optronics Corp. case is a perfect example.  The case was filed by the attorney general of Mississippi following the settlement of a series of private class actions alleging essentially identical claims based on the defendants alleged price fixing conspiracy in the liquid crystal display or 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. 

Thus, the core issue in AU Optronics was whether these types of claims could avoid CAFA jurisdiction merely because they were included in a complaint labeled as a "parens patriae" actions filed by the state, or whether they fell within CAFA's "mass action" provision and could be removed to federal court.

What were the abuses that led to CAFA?

The primary abuse that motivated the passage of CAFA was that certain state counties became class action havens, including Madison and St. Clair Counties in Illinois and Miller County in Arkansas.  In these jurisdictions, dozens if not hundreds of nationwide class actions were being filed against out-of-state defendants who were then effectively forced to settle the cases, because the forum was viewed as biased in favor of the plaintiffs and in certain jurisdictions the defendants would not be allowed to raise threshold defenses before having to incur expensive discovery practice, which effectively forced settlements of even facially meritless lawsuits. 

Even worse, these cases were often settled on terms where the class members themselves received little or no benefit, while the class counsel would received windfall attorneys' fee awards—often exponentially greater than the total value provided to the class as a whole.  Media attention regarding these types of settlements largely provided the motivation for CAFA's passage.

Other abuses included the general concern of actual or perceived state court bias against out-of-state defendants, as well as duplicative and overlapping class actions, also known as "copy cat" actions, which can exist in the absence of federal jurisdiction because the same nationwide class action could be filed and litigated in multiple states unless the state court judges themselves choose to defer to another state court action.

What was the reasoning behind the Supreme Court's ruling in rejecting federal jurisdiction in AU Optronics?

In an opinion authored by Justice Sotomayor for a unanimous court, the Supreme Court held that CAFA's "mass action" provision did not apply to parens patriae suits even if the claims include monetary claims on behalf of specific citizens of that state.  AU Optronics Corp., Case No. 12-1036, Slip Op.  The Supreme Court's analysis focused on the specific text of the mass action provision.  In particular, the Court noted the requirement that mass actions involve the claims of at least "100 or more persons," which the Supreme Court equated with "plaintiffs."  This conclusion was based on the context of that language both within CAFA and also the similar usage of those terms interchangeably 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 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 individual 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.  Of course, the Supreme Court's opinion seemed to ignore that from the defendants' perspective, the state's claims likely would exceed the $75,000 threshold and keeping the state's claims in federal court in this type of a case was the ultimate goal.

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.  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.

Are there any other possible CAFA arguments or other strategies to attempt to prevent these types of parens patriae suits?

Yes.  The primary CAFA jurisdictional basis is under the class action provision, which was not addressed directly by the AU Optronics court and was not urged as an alternative ground by the defendants in that case.  Interestingly, the amicus brief we filed was the only brief that appears to have raised the argument that these types of suits are effectively class actions in everything but name.  Thus, that argument remains potentially viable although it has been rejected by some circuit courts, which reason that whatever authority authorizes a parens patriae suit is not sufficiently similar to Rule 23 to bring that action within CAFA's scope.  That reasoning, however, is inherently circular and one could easily reach the opposite conclusion and conclude that if the state authorizes the attorney general to file such suits—which by definition involve the same claims as authorized by a Rule 23 private class action—then as a matter of logic that state authority is "similar" to Rule 23 because it is allowing the state as a representative to prosecute the claims of an unnamed class of individuals.  While there is some language in the Supreme Court's AU Optronics decision that could be read as suggesting such an argument will not ultimately prevail, it was not addressed by the Supreme Court and remains a viable argument for removal in most circuits for now.

Beyond CAFA, certain types of claims may have alternative grounds for removal and there are other potential strategies that might allow the same claims or issues to proceed in federal court—particularly when the state merely copy cats claims that are already pending or subject to settlements in federal court.

Even if the case remains in state court, there will also be substantial arguments regarding the state attorney general's authority or power to bring claims that belong to private individuals in an attempt to either usurp those claims for the state or seek an improper double recovery for the same damages. Ultimately the exercise of any state authority is subject to federal constitutional limits that could be reviewed by the United States Supreme Court after the respective state court system's highest court resolves the issue.

While the best strategy will vary from case to case, our team at Dentons has dealt with these issues in many different contexts and jurisdictions, which gives us a wealth of experience from which to draw when faced with such "parens patriae" litigation.

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.

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