January 16, 2014

Supreme Court Rules State AG Suits Free from CAFA Restraints

Whistleblower_resourcesBy the C|C Whistleblower Lawyer Team

The Supreme Court ruled on Tuesday, in a unanimous decision authored by Justice Sonia Sotomayor, that the Class Action Fairness Act (CAFA) does not apply to so-called parens patriae actions.  These are lawsuits filed by state attorneys general to recover damages on behalf of their residents for corporate misconduct.  The decision, Mississippi v. AU Optronics Corp., is notable not only because it was unanimous among the Court’s nine justices, a rare occurrence these days when it comes to questions of corporate liability.  It also represents one of the few instances where the ever-increasing rigors of class action treatment have been narrowed (albeit modestly), not broadened.

CAFA was enacted in 2005 to make it more difficult to maintain class actions in state court where corporations have historically complained of disfavored treatment.  As Congress more delicately put it, there was a concern that certain requirements of federal diversity jurisdiction had functioned to “keep cases of national importance” in state courts rather than federal courts.  CAFA addressed this concern by loosening the requirements for diversity jurisdiction in class actions and mass actions so they could more easily be removed from state to federal court.

The State of Mississippi brought this case in state court against manufacturers of liquid crystal displays or LCDs, charging them with participating in an international cartel to restrict competition and raise prices in the LCD market.  It is just one of numerous actions brought against these defendants by public and private parties for this anticompetitive scheme.  Although Mississippi is the only plaintiff here, and is suing exclusively under the state’s antitrust and consumer protection laws, the defendants sought to remove the case to federal court under CAFA.   They obviously believe they would be subject to more favorable treatment in federal court than in the “home” court of the State AG bringing the suit.

The defendants’ central argument for removal under CAFA was that the real parties in interest were the multitudes of state residents on whose behalf the State is suing.  Looking to the plain text of the statute, the Supreme Court rejected the argument and found CAFA did not cover this kind of case.  The Court avoided any foray into the more complicated and controversial issues of state sovereignty that might have been raised.  It simply looked to the CAFA provision that limits the statute’s coverage to class actions or suits brought jointly by 100 or more persons (in the case of mass actions).

The Court found that since Mississippi is the only plaintiff here, the case fell outside of these straightforward strictures regardless of the numerous state residents who will benefit from a positive outcome.  Ultimately, the Court rejected the defendants’ efforts to treat as class actions representative actions brought by states.  If Congress had wanted these kinds of cases to be removable under CAFA, “it would have done so through the class action provision.”  It did not do so.

While this case does nothing to reverse or remedy many of the Supreme Court’s recent decisions cutting back on the right and ability to bring viable class actions.  It does present a refreshing break from what some see as the High Court’s growing hostility towards the plaintiffs’ bar and class actions more generally.  Indeed, Justice Sotomayor went out of her way in the decision to cite to Congress’s recognition in CAFA that “class action lawsuits are an important and valuable part of the legal system.”  This is not a recognition the Supreme Court has been so willing to acknowledge as of late.

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