Supreme Court Rules that CAFA Does Not Allow Removal of Lawsuits Brought by State Attorneys General on Behalf of Consumers
Supreme Court’s Decision
The United States Supreme Court ruled unanimously on Tuesday that the Class Action Fairness Act (CAFA) cannot be used to remove to federal court cases filed by state attorneys general as parens patriae on behalf of the citizens of their states. The Supreme Court’s ruling in Mississippi ex rel. Hood v. AU Optronics Corp., Case No. 12-1036, resolved a split among the circuit courts over whether CAFA, which allows defendants to remove mass actions – cases involving the claims of “100 or more persons” – applies to lawsuits where state attorneys general are the plaintiffs, but represent the interests of numerous consumers in their states.
The decision overturned a decision by the Fifth Circuit Court of Appeals in a case filed by the Mississippi Attorney General on behalf of Mississippi residents against a number of manufacturers of LCD flat panel displays. The case was one of a number of lawsuits filed by state attorneys general arising out of a Department of Justice investigation that concluded in 2006 that these manufacturers had engaged in a worldwide price fixing conspiracy.
Justice Sonia Sotomayor, writing for the Court, reasoned that the reference to “100 or more persons” in CAFA really meant 100 or more individual plaintiffs, and that, had Congress intended “persons” to mean “real parties in interest,” it could have included such broadening language in the statute.
The Court further held that the context of CAFA’s enactment supported the Court’s interpretation because Congress’ main concern at the time of passage was with class actions, not mass actions. “The mass action provision thus functions largely 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. . . . If Congress had wanted representative actions brought by states as sole plaintiffs to be removable under CAFA on the theory that they are in substance no different from class actions, it would have done so through the class action provision, not the one governing mass actions.”
Practical Implications of the Decision in AU Optronics Corp.
The decision has a number of important ramifications for businesses that regularly deal with claims by consumers and/or state attorneys general.
First, businesses scored a major victory by the enactment of CAFA, which created broad federal court jurisdiction over significant class action claims. State courts were viewed as being broadly much more favorable to plaintiffs, a view that has been reinforced by recent federal court decisions taking a narrow view of class actions and a broad view of key defenses, such as arbitration. This decision reverses that victory to a measurable and significant degree.
Second, concerns exist that an attorney general can assert many types of claims free of important defenses and other advantages. For example, many defendants previously sought to remove parens patriae actions out of fear that state courts will give undue deference to state attorneys general when they act as plaintiffs. For another, it is not clear whether state attorneys general would be bound by releases and arbitration agreements entered into by consumers. The massive wave of attorney general litigation against the tobacco companies that led to the many-billion-dollar landmark Master Settlement Agreement is a graphic example how claims can grow in power when pursued by an attorney general.
Third, the decision is likely to prompt members of the plaintiffs’ bar to seek out attorneys general to partner with in filing parens patriae actions on a contingency basis. This is particularly likely in cases in which consumer class claims otherwise would be barred by mandatory, individual arbitration clauses. Therefore, defendants can anticipate an uptick both in the frequency as well as the severity of claims.
About Troutman Sanders
Troutman Sanders is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of public and private institutions, including in individual actions, mass actions, and class actions. Troutman
Sanders’ State Attorneys General practice group also has successfully represented companies responding to state attorney general investigations and parens patriae lawsuits filed by state regulators.
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