5th Circuit gives state AGs a new way to evade federal court

December 3, 2013

Last month, the U.S. Supreme Court heard arguments in Hood v. AU Optronics, the case that will determine whether consumer suits by state attorneys general must be litigated in federal court under the Class Action Fairness Act or may be tried in the plaintiffs-friendly confines of state court. I’ve been harping on these AG cases, known as parens patriae suits, because they’re increasingly the most viable way to hold corporations accountable in court to consumers, thanks to the Supreme Court’s predilection for arbitration and skepticism about class actions. An array of pro-business groups seized the opportunity of the AU Optronics case – in which the 5th Circuit Court of Appeals split with several other federal circuits and held that parens patriae suits are removable to federal court under CAFA – to ask the Supreme Court to rein in state AGs, just as the justices last term curbed class action lawyers who tried to stipulate their way out of federal court.

The Supreme Court hasn’t yet decided the AU Optronics case, and the justices’ questions at oral argument didn’t offer a clear indication of which way most of them are leaning. But if the high court determines that AG suits based on alleged harm to state residents are class actions or mass actions in all but name, a new ruling by the 5th Circuit could undermine the significance of that decision. For parens patriae defendants, it turns out, the 5th Circuit giveth but it also taketh away.

Monday’s per curiam opinion, by Judges Priscilla Owen, Jennifer Elrod and Catharina Haynes, said that six parens patriae suits filed by Mississippi Attorney General Jim Hood must be remanded to state court, despite arguments by the bank defendants that under the 5th Circuit’s own AU Optronics precedent, the suits are class or mass actions under CAFA. The AU Optronics precedent, the new opinion said, is based on the premise that state AG suits are actually prosecuted on behalf of hundreds or thousands of consumers, even though the cases are brought in the name of the state. If that premise is correct, the 5th Circuit judges said (noting the Supreme Court will have to decide if it is), then in order to keep a parens patriae case in federal court under CAFA, defendants must satisfy two elements: They must be able to show that the case’s aggregated potential claims exceed $5 million and that at least one plaintiff’s individual claims exceed $75,000.

In the cases before the 5th Circuit, which all involve assertions of overcharges for credit card services Mississippi consumers didn’t want or need, the state AG’s complaints estimate annual charges for the supposedly mismarketed services to be $68.40 to $162 per customer, according to the 5th Circuit opinion. And though the banks submitted declarations asserting that Mississippi credit card customers have paid more than $5 million in total fees for the services – enough to qualify the cases as CAFA mass actions – “the declarations are silent as to fees charged to any individual customers, and do not allege that any customer has paid $75,000 or more in such fees,” the opinion said. As a result, the 5th Circuit said, defendants couldn’t surmount the CAFA obstacle of proving an individual amount in controversy of more than $75,000.

The bank defendants, collectively represented at oral argument by Robert Wick of Covington & Burling, argued that one plaintiff – the Mississippi AG – was asserting individual claims of more than $75,000. The judges rejected that argument, ruling that defendants couldn’t have things both ways. Either consumers are the real parties in the parens patriae case – which would entitle defendants to litigate in federal court but only if they meet CAFA’s amount in controversy requirements – or the AG is the only plaintiff and may litigate in the forum of his choice. “Any claims for which the state is the sole party in interest could not possibly be mass action claims, as they are brought by a single plaintiff on its own behalf, rather than a mass of plaintiffs,” the opinion said.

You can see why this analysis would be immensely helpful to AGs if the Supreme Court decides that parens patriae cases are mass actions or class actions for CAFA purposes. Under the 5th Circuit’s reasoning, in order to keep the case in federal court, defendants will still have to be able to show that at least one state resident can claim at least $75,000 as an amount in controversy. Consumer cases typically involve much, much smaller individual claims – claims, in fact, that often wouldn’t be worth the effort of pursuing singly, but which only make economic sense through a class action or parens patriae suit. Monday’s opinion said the federal circuits have generally avoided the question of whether defendants must show that the amount in controversy for every plaintiff in a CAFA case exceeds $75,000 or whether they can stay in federal court if only one plaintiff is claiming such damages. Even that looser standard, though, would keep almost all AG consumer suits in state court.

I left phone messages for bank counsel Wick of Covington and for Ann Saucer of Baron & Budd, who argued at the 5th Circuit for the Mississippi AG. Neither got back to me.

(Reporting by Alison Frankel)

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