022005 1 On February 18 2005 President Bush signed into law the Class - PDF document

1 02.2005| 1 On February 18, 2005, Preside
02.2005| 1 On February 18, 2005, President Bush signed into law the Class Action Fairness Act of 2005 (“CAFA”), calling it “a practical way to begin restoring egal system.” CAFA is effective enactment. CAFA changes the current law in three ways: (1) It expands federal diversity ju 02.2005| 2 claims to meet this threshold; and (c) eliminating the complete diversity requirement so that diversity between any class member — not just class representatives — and any defendant will constitute the requisite diversity. CAFA then limits the general rule of minimal diversity by creating a three-tier system based on the composition of the class. First Tier: Mandatory Federal Jurisdiction. If fewer than one-third of the class members are he rule of minimal diversity applies without exception, and the federal district court must exercise jurisdiction. Second Tier: Discretionary Federal Jurisdiction. If more than one-third but fewer than two-thirds of the class members are citizens of the forum state, and the “primary” defendants are he federal district court may decline jurisdiction after considering a range of factors, including whether the action was pleaded in a manner that “seeks to avoid federal jurisdiction,” and whether “one or more class actions asserting the same or similar claims on behalf of the same or other persons” have been filed in the preceding three years. Third Tier: No Federal Jurisdiction. The federal court must remand the action in the following two circumstances: Test #1: if two-thirds or more of the class members, and the “primary” defendant

2 s, are Test #2: if more than two-thirds
s, are Test #2: if more than two-thirds of the class members are citizens of the forum state, and if at least one defendant is a defendant: (1) from whom “significant relief” is sought; (2) whose conduct forms a “significant basis” for the claims; and (3) who is a citizen of the forum state. In addition, the “principal injuries” stemming from the defendants’ conduct must have occurred in the forum state. Thus, in a single-defendant suit, CAFA virtually immunizes out-of-state corporations from being sued in state courts other than those of their principal place of business or state of incorporation. Moreover, a defendant will generally be subject to no more than two class action lawsuits in two state courts for the same subject matter. Exemptions. CAFA exempts from its reach several areas regulated by separate federal and state statutes, such as claims involving (a) securities; (b) internal corporate affairs and fiduciary duties; and (c) government defendants. Special Rules For Mass Torts. CAFA does not substantively affect mass tort actions or the ability of states to adjudicate them when there are less than 100 plaintiffs. The new rules, however, do apply ifmonetary reliefis sought on behalf of 100 or more persons and there are allegedly common questions of law or fact. And, rather than aggregating plaintiffs’ potential damages, each mass tort plaintiff must meet the current $75,000 jurisdictional threshold. 2. Special Rules For Removal Of Class Actions CAFA also adopts a variety of new removal procedures: One-Year Removal Deadline Eliminated. While CA

3 FA does not amend the general rule that
FA does not amend the general rule that cases be removed to federal court within 30 days from the point when removal “may first be ascertained,” it eliminates the hard-and-fast one-year deadline imposed on other actions by 28 U.S.C. § 1446(b). Now, removal is possible even after trial. Consent Of All Defendants Not Required. CAFA lifts, for class actions, the general rule under 28 U.S.C. § 1446(b) that all defendants must join in a notice of removal: an action “may be removed by any defendant without the consent of all defendants.” business or state of 02.2005| 4 Whether additional defendants need be impleaded or joined; and Whether, in potential mandatory remand situations, there exists a “significant defendant” from whom “significant relief is sought” and whose alleged conduct “forms a significant basis” of plaintiffs’ claims. These issues can be fraught with strategic implications. For example: In order to prove the size and location of the plaintiff class, defendants may be required to produce, early on, confidential information such as customer lists, complaint files, and so If out-of-state Defendant X wishes to remove, must it then argue that it — as opposed to the in-state defendants — is a “primary” defendant in the matter? What if the in-state defendants seek to remove on grounds that Defendant X is a primary defendant, over the objection of Defendant X? Because the removal statute states that qualifying class actions “may be removed by any defendant without the consent of all defendants,” crucial conflicts may arise early not only between

4 plaintiffs and defendants, but also amon
plaintiffs and defendants, but also among defendants themselves. Moreover, these strategic issues must potentially be addressed in the first 30 days of the litigation, and, in many cases, long before a remplaint is filed. Although the one-year deadline on removals has been lifted, defendants still have only 30 days from service of the complaint or from the point at which it is “ascertainable” that the case could be removed, in which to seek removal as of right.While CAFA on its face affects only issues relating to jurisdiction and settlement, it may still bear on class certification issues. A court faced with determining the above issues early on in the litigation will undoubtedly begin to form an opinion regarding the viability of the putative classes: courts focusing closely on the class definition in order to determine the size and location of the class, as well as the appropriate designation of the “primary” defendants and whether the class allegations were pleaded in order to avoid federal jurisdiction, will likely evaluate the merits of plaintiffs’ class definitions and defendants’ relation to them. Similarly, a federal court may not wish to expend considerable resources required to adjudicate removability prior to certification, and may expedite the latter determination accordingly. Companies Headquartered Or Incorporated In Large States, Beware! Plaintiffs cannot take advantage of the “Tier 2” or “Tier 3” remand provisions of CAFA so long as the “primary defendants” are out of state. Plaintiffs will therefore likely join as many in-state defendan

5 ts as possible, including those which mi
ts as possible, including those which might otherwise be only peripheral to the litigation, and then attempt to cast them as the “primary defendants.” Although such defendants’ true nexus to the claims — along with appropriate venue and forum non conveniens issues — will presumably be sorted out during the course of litigation, they will still be subjected to substantial discovery and motion practice before such determinations may be made. Whither The Nationwide Consumer Class? CAFA will not entirely eliminate the existence of plaintiff-friendly state court jurisdictions, but it will at least limit such courts’ ability to certify nationwide classes. There is considerable debate regarding the degree to which federal courts may be more or less likely than state courts to certify nationwide classes, and therefore the degree to which CAFA will impact the certification of nationwide classes once they are removed to federal court. A recent study by the Federal Judicial Center suggests that class Thomas E. Willging & Shannon R. Wheatman, An Empirical Examination of Attorneys’ Choice of Forum in Class Action Litigation, Federal Judicial Center (2005). The study can be found at http://www.fjc.gov/ Under CAFA, courts 02.2005| 6 This alert was written by Beth I.Z. Boland, a Securities Litigation/Corporate Governance partner in Bingham McCutchen’s Boston office, who can be reached at (617) 951-8143 beth.boland@bingham.com. Associates Jonathan Sommer (San Francisco), Ilia O'Hearn (Hartford), Megan Deluher

6 y (Boston), and Peter Pound (Boston) pro
y (Boston), and Peter Pound (Boston) provided drafting and research assistance. For more information about the Class Action Fairness Act of 2005, please contact one of the following Bingham McCutchen practice group leaders with practices focuChris Hockett Intellectual Property & chris.hockett@bingham.com 415.393.2612 Antitrust & Trade Regulation donn.pickett@bingham.com 415.393.2082 Steve Hansen Securities Litigation steven.hansen@bingham.com 617.951.8538 Dale Barnes Securities Litigation dale.barnes@bingham.com 415.393.2252 Janice Howe Products Liability janice.howe@bingham.com 617.951.8504 Peter Neger Products Liability peter.neger@bingham.com 212.705.7226 To communicate with us regarding protection of your personal information or if you would like to subscribe or unsubscribe to some or all of Bingham McCutchen LLP’s electronic and mail communications, please notify our Privacy Administrator atprivacyUS@bingham.comor privacyUK@bingham.com. Our privacy policy is available at www.bingham.com. We can also be reached by mail in the U.S. at 150 Federal Street, Boston, MA 02110-1726, ATT: Privacy Administrator, or in the U.K. at 99 Gresham Street, London, England EC2V 7HG, ATT: Privacy dministrator. This communication is being circulated to Bingham McCutchen LLP’s clients and friends and may be considered advertising. It is not intended to provide legal advice addressed to a particular situation. © 2005 Bingham McCutchen LLP. www.bingham.com Boston Hartford London Los Angeles New York Orange County San Francisco Silicon Valley Tokyo Walnut Creek Washing