SCOTUS amicus brief could radically alter class action landscape

November 1, 2012

On my way to work today at Reuters’ satellite office in Suffolk County, New York, I had a chance to witness the devastation Hurricane Sandy wreaked on Long Island, where I live and where 90 percent of us lost power in the storm. Wending around downed trees and power lines turned what should have been a half-hour drive on major roads into an hour-long trek through police-directed detours and past huge piles of branches already cleared by road crews. In some neighborhoods there’s not a power line still attached to utility poles — unless the pole itself has been toppled.

I was traveling east, so at least I eventually arrived at a functioning office with a phone and Internet. Had I tried to head west, to Manhattan, I would never have made it to work. The Queens Midtown Tunnel, which is the primary artery between Long Island and the rest of the world, is closed, and traffic was so thick in the approach to the Queensboro Bridge, the next-best alternative, that it was for all intents and purposes closed as well. As of Wednesday afternoon, Long Islanders have virtually no way out.

Believe it or not, my little tale of woe is actually an extended metaphor for the story I bring you today of an amicus brief that could block class action lawyers from state court as effectively as the hurricane has sealed off Long Island from the rest of the world. Remember the case known as Standard Fire v.Knowles, in which the U.S. Supreme Court granted certiorari in August? Both sides in the case say the question it presents is whether a class action plaintiff can defeat removal to federal court under the Class Action Fairness Act by stipulating on behalf of the entire class to seek less than $5 million, the statutory cut-off for a state-court class action. That’s an important question, since class action lawyers in certain jurisdictions (most notably in the 8th Circuit) have used such stipulations to stay in state court, where they’ve been able to force defendants into settlements of more than $5 million in litigation before plaintiff-friendly judges.

But the National Association of Manufacturers, in an amicusbrief written by Jones Day, asserts that both Standard Fire and the class are asking the wrong question. According to NAM, the real issue is whether defendants have the right, under the Class Action Fairness Act, to remove every class action from state court as long as diversity jurisdiction exists. Under the CAFA reading proposed by NAM and Jones Day, class action lawyers would have no route to state court unless they were suing corporations headquartered in the same state as the class.

To return to my Hurricane Sandy metaphor, class action lawyers have so far been able to wind around the fallen trees CAFA has thrown in their path to reach the destination of state court. Even if Standard Fire manages to divert class counsel with a fallen power line — by prevailing on the issue it presented to the Supreme Court — plaintiffs’ lawyers would probably figure out a route to state court. But the NAM theory would shut down the tunnel and seal off the bridge, blocking class actions from leaving federal court.

Here’s the argument, as devised by Jeffrey Mandell of Jones Day. CAFA includes a provision that grants federal courts removal jurisdiction over just about all cases in which a class of at least 100 people seeks damages of more than $5 million. NAM described this provision, Section 4 of CAFA, as expanding the federal judiciary’s original jurisdiction. But the statute also contains a separate provision, Section 5, on what NAM called remand jurisdiction. That provision, according to NAM, grants defendants broad power to remove just about every class action to federal court. “Section 5 creates an independent basis of removal (from Section 4) for most class action suits filed in state courts,” the NAM brief said. “These provisions work in parallel, but they are not identical in scope.” The key difference between the two CAFA provisions, according to the NAM brief, is that the restrictions on removal that apply in Section 4 — including the requirement that the class be seeking more than $5 million in damages — do not apply under Section 5. That means, according to the brief, that Section 5 confers much broader removal power to defendants than Section 4.

Standard Fire and the class aren’t alone in asking the wrong question: According to the brief, just about every federal court that’s issued an opinion on removal under CAFA appears to have operated under the assumption that the Section 4 restrictions apply to Section 5 removal as well. NAM’s Jones Day lawyers argued that the language of the CAFA statute does not support that assumption. They also pointed out that if Congress intended the same restrictions to apply to both Section 4 and 5, there would have been no need to distinguish the two provisions; they would be entirely redundant.

Gregory Katsas of Jones Day, who is NAM’s lead lawyer on the amicus brief, told me Wednesday that when he first heard Mandell’s theory, “it seemed like a weird idea to me,” mostly because conventional wisdom has been that class actions involving less than $5 million can stay in state court. Jones Day combed the case law, Katsas said, and found that courts had simply assumed that to be the case without questioning the language of the statute. “What’s remarkable about this is the simplicity of it, the power of it, and the fact that it doesn’t seem to have been pursued in other cases,” Katsas said.

Katsas conceded that there’s no guarantee the Supreme Court will consider NAM’s argument, which does not directly address the question the Standard Fire case presents. “We’re sort of out there in the case (but) wanted to be sure the argument isn’t foreclosed through inadvertence,” he said. And NAM’s strict statutory construction of CAFA may appeal to the high court’s textualists, such as Justice Antonin Scalia, Katsas said. Right now the case presents complicated questions of the rights of absent class members, he noted. But “this might conceivably be a cleaner, easier way out of the case,” Katsas said.

Standard Fire counsel Theodore Boutrous of Gibson, Dunn & Crutcher told me that NAM is one of 36 amici in 13 briefs filed Monday at the Supreme Court in support of Standard Fire. Attorneys General from 15 states said they’re troubled by attempts to circumvent CAFA. Several defendants that have had their own misadventures in state court in Miller County, Arkansas, where the Knowles case was filed, submitted an amicus briefdescribing the supposed abuses there. The U.S. Chamber of Commerce and the Partnership for America, you will be shocked to hear, agree that CAFA is good for American business.

“We have a powerful and eclectic array of amici that demonstrate in multiple ways why the remand order (to state court) should be reversed,” Boutrous said. I asked him specifically about NAM’s argument, which Boutrous agreed is “bold.”

“It’s a very interesting perspective and helpful to have amici look at the question from different angles,” he added.

Jonathan Massey of Massey & Gail, who represents the Knowles class at the Supreme Court, told me that NAM’s argument “lacks legal merit and we will address that” in a response brief due on Nov. 28.

(Reporting by Alison Frankel)

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