More “Reform” from John Beisner and the Chamber

In connection with its "Legal Reform Summit" last week, the U.S. Chamber of Commerce's Institute for Legal Reform issued a new paper written by John Beisner and his colleagues at Skadden Arps with new proposals for legislation to limit class actions and expand federal jurisdiction over both class actions and individual actions. Entitled A Roadmap for Reform: Lessons from Eight Years of the Class Action Fairness Act, the paper provides a corporate wish-list for legislation to expand the Class Action Fairness Act (CAFA), as well as legal analysis intended to support these proposals for further "reform." In light of John's success in helping to shape both the debate over CAFA and the terms of the law, his thoughts about next steps in pursuing the corporate agenda of limiting litigation are well worth examining.

One striking thing about the paper is that it seemingly treats any issue a defendant has lost under CAFA as a potential subject for legislation to close "loopholes" in CAFA, even if the issue has only been the subject of one or two judicial decisions. But the paper also advances some ideas that are far-reaching and well beyond CAFA's current scope, such as the complete elimination of cy pres awards, the prohibition of "issue classes," and the expansion of federal diversity jurisdiction to include even non-class actions if they are related to a Multi-District Litigation (MDL) proceeding pending in the federal courts.

Some of Beisner's discontent is directed at basic compromises embedded in CAFA itself. For example, he is dissatisfied with the law's provision that allows a mass action to be removed only if 100 or more plaintiffs propose to try their cases jointly. The courts have unanimously held that different groups of fewer than 100 plaintiffs, who don't propose to try their cases together, cannot be combined for purposes of this provision even if they advance similar claims, because the law was designed to prohibit cases from being removed as mass actions when defendants rather than plaintiffs propose to try them jointly. Similarly, he objects to the fact that, under the current law, separate class actions involving similar claims can remain in state court if they do not separately meet CAFA's jurisdictional amount and class size requirements. In Beisner's view, these lmits on federal jurisdiction in CAFA are "loopholes" that require closing, even though the law was deliberately written NOT to bring all class actions and mass actions into federal court.

Other proposals for reform address relatively trivial issues. For example, the Third Circuit held several years back that in cases where a plaintiff's class action complaint limits the damages sought to less than the CAFA threshold of $5 million, a defendant cannot remove unless it proves to a "legal certainty" that the amount in controversy is actually greater. Beisner proposes legislation to overrule this decision, even though it is unclear whether it has any continuing effect after last year's Supreme Court decision in Knowles, which prevented class plaintiffs from using limits on damages sought to avoid CAFA jurisdiction.

Some of Beisner's proposals, however, are far-reaching and go well beyond closing supposed loopholes in CAFA. For example, he suggests amending CAFA to provide that in federal-court class actions, amounts paid for cy pres awards may not be considered in awarding fees to class counsel. He acknowledges that the express aim of such a law would be not just to limit or reform cy pres awards, but to "put an end" to them. Interestingly, he singles out Judge Posner for criticism in his discussion of cy pres for Posner's suggestion in a recent decision that cy pres could be a proper remedy in a case where each member's claim was too small to distribute.

Another expansive suggestion in the paper is that federal removal jurisdiction be expanded to include non-class actions filed in state courts that do not meet ordinary requirements for removal (either because of incomplete diversity or because the case is brought in a defendant's home state) if the cases involve claims that are similar to those in a pending MDL in the federal courts. The suggestion is novel because it would transform MDL proceedings from a tool for the efficient management of cases in the federal courts to a basis for expansive jurisdiction over garden-variety individual cases that do not otherwise meet federal jurisdictional standards. There appears to be no basis for assertions that such claims have been subject to "abuses" in the state courts. Apparently, defendants' mere preference for the convenience of litigating in a federal forum with an MDL is now a sufficient basis for proposing expanded diversity jurisdiction.

Another proposal, buried near the end of the report, is to limit the availability of "issues classes" under Federal Rule of Civil Procedure 23(c)(4). Issues classes involve class certification of particular common issues (typically going to a defendant's liability) while leaving other issues for individual resolution. Although they have not yet been as widely used as they could be, they have recently received attention in part because Judge Posner has advocated their use in cases where certain issues can be efficiently litigated on a class basis, but the case as a whole may not meet requirements for certification, particularly in light of the Supreme Court's Wal-Mart and Comcast decisions. Labeling issues classes "inherently unfair" and denying their efficiency benefits, Beisner proposes either changes in the rules or a "statutory fix" to prevent a trend toward issues classes from taking hold. Beisner's suggestion appears to reflect a concern that issues classes may prove to be a viable way for plaintiffs to pursue collective litigation in the face of decisions that render broader certification unavailable.

There is more to the Roadmap than I've addressed here, so this blog entry is no substitute for reading the original for anyone concerned about where the corporate "reform" agenda is headed.

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