Cross-posted from Tort Deform
by Brian Wolfman, Director of Public Citizen Litigation Group
Today, I’m writing about the relationship between the so-called Class Action Fairness Act (CAFA) and the attack on the consumer class action and consumer law more generally. CAFA was enacted in February 2005 for the fundamental purpose of bringing virtually all substantial class actions based on state law into federal court. State-law class actions can now be filed in, or removed to, federal court based on minimal diversity of the parties, not the ordinary complete diversity rule. Under CAFA, there are a few situations in which the minimal diversity may not apply – for more or less "local controversies" – but they can only be invoked, at a minimum, if the main defendant is a citizen of the forum state, which is rarely the case with large corporations, whose corporate "citizenship" often has nothing to do with where it does business.
Indeed, relying on corporate citizenship is sort of silly in this day and age, where McDonald’s is no more a "citizen" of Illinois, where it is incorporated, than, say, California, where it does an enormous amount of business. Why shouldn’t a class composed entirely of Californians suing under California law be able to sue McDonald’s in California state court? (I’ll save my beef with the current conception of corporate "citizenship" for another column.)
In any event, judges, because of the cases presented to them, and the bloggers, academics, and columnists, because it is the only CAFA game in town so far, have become intensely interested in how the so-called "exceptions" to CAFA jurisdiction should be interpreted. But that’s not the real story. The real story is that CAFA has had its intended jurisdictional effect: In the vast majority of cases that matter to the big companies and their lobbyists that wrote CAFA, defendants now have their choice of forum. So, corporate defendants can go federal court when that’s where they want to be. And, indeed, preliminary studies conducted by Tom Willging of the Federal Judicial Center show that, in general, corporate defendants want a federal forum, as there has been a large migration of consumer class actions from state to federal court.
The exceptions are on the margin – they involve fringe cases – and, so, the academic and judicial hubbub about them has obscured the reality. The important questions are not how one defines "primary defendant" (which is an important issue for invoking one of the local controversy provisions) or who has the burden of proving CAFA’s $5 million amount in controversy. The real question is whether forum choice matters: Are the results in class actions – class certification, settlement, attorney’s fees, rulings on the merits – different when the defendant has forum choice than when it does not? This is very difficult research because there is no real control group: After all, post-CAFA, plaintiffs have forum choice in very few consumer class actions. But it is the important question. And the answer is the only way to know whether CAFA should be substantially revised or repealed.
This brings me to my second point. CAFA’s proponents often said that all they wanted was abstract "fairness" – the right to be in federal court when the matter was between parties from different states or the case concerned issues of national concern. But that can’t be right. Litigants are interested in results, and CAFA’s proponents thought the results would often be better in federal court. So, corporate defendants who lobbied for CAFA knew that they’d be able to argue that because the case involved plaintiffs from all over the country, the case should be in federal court. But that wasn’t the end point. Once in federal court, they felt that, in general, they would have a more sympathetic judicial ear for the claim that multi-state class actions brought under state law – that is, the laws of multiple states – would fail to meet the "predominance" requirement of Federal Rule of Civil Procedure 23 and, thus, couldn’t be certified as class actions. After all, decisions in number of federal circuit courts had suggested that these multi-sate consumer class actions were not certifiable. So, just to reiterate, this was the game plan: You ask Congress to enact a law on the ground that national state-law class actions ought to be litigated in national (that is, federal) courts, but then you get the cases ditched on the ground that, well, they are national state-law-based class actions, involving the laws of multiple states, and for that reason can’t be certified.
So, here’s my solution: Most state-law-based consumer class actions are filed under state consumer protection laws. These laws are known as "UDAPs" because they outlaw unfair and deceptive acts and practices. UDAPs are modeled after a famous federal law, section 5 of the Federal Trade Commission Act, enacted in 1938. But the Federal Trade Commission Act does not have a private right of action, and it’s not very vibrant these days because only the Federal Trade Commission can enforce it. If we are concerned – and in some cases we should be – that the differences among the states’ various consumer protection laws make class actions unwieldy, let’s amend the FTC Act to add a private right of action. Then, we’d have one uniform federal law, enforceable by federal courts, so that consumers can truly be protected from unfair and deceptive business practices.
And, this brings me to my final point on consumer class actions. As I said, CAFA’s corporate proponents didn’t seek its enactment because of some abstract interest in the purity of federal diversity jurisdiction. They wanted CAFA because they wanted to be able to choose the forum. But they have a broader agenda. Just in case they actually have to defend consumer protection cases on their merits, they want to gut the UDAP laws on which those cases are based. Through the American Legislative Exchange Council, or ALEC, they have proposed a "model" UDAP law, which would take us back decades, and be the ruination of the modern consumer protection class action. Most importantly, the model law would require that plaintiffs prove "reliance" on an unfair and deceptive practice, which is prohibitively expensive and next-to-impossible to prove, particularly when a defendant has ripped off consumers in relatively small amounts. Indeed, a key purpose of the Federal Trade Commission Act and the state UDAP statutes was to legislatively overrule the elements of the tort of common-law fraud, most prominently the need to show individual reliance. These laws overruled that common-law requirement precisely because it was generally an insurmountable obstacle to attacking fraudulent and misleading business practices.
So, under ALEC’s proposal, it would not be enough that the plaintiff or a plaintiff class lost money after the seller of a product debited the plaintiffs’ accounts by $20 when the company’s advertisements said the product cost $10; the plaintiffs would have to prove, plaintiff-by-plaintiff, that they relied on the advertisements in purchasing the product.
So, let’s make no mistake about it, the goal of the corporate community is to defang – to essentially eliminate – modern consumer protection law. It’s up to the rest of us to defeat that effort.