If you haven’t been a defendant in a class action, or a lawyer working on one, you likely have not heard about the Class Action Fairness Act (“CAFA”). Even when told that the purpose of the Act is to allow class actions that meet certain criteria to be tried in federal court, the significance of that often isn’t clear. The long-story short is that the consensus is that federal court is the preferable place to be as a defendant in a class action, and CAFA makes it much easier to get there.
Why federal courts are generally a better place to be for defendants
Pleading standard and motions to dismiss
The pleading standard in federal court, while similar to that in California state courts, is more demanding, and there’s a perception that federal judges are more likely to dismiss claims that do not meet that standard. Federal courts require plaintiffs to meet the “plausibility” standard announced by the US Supreme Court in Bell Atlantic v. Twombly, 550 U.S. 544 (2007). Meaning they must allege sufficient facts that make it plausible they are entitled to relief, otherwise the lawsuit can be dismissed for failure to state a claim. The meaning of this standard was clarified in Ashcroft v. Iqbal, 556 U.S. 662 (2009) where the court explained a litigant can’t simply allege conclusions, they have to allege the facts to support them, and the facts must make it plausible that plaintiff is entitled to relief.
The pleading standard in California’s state courts on its face does not appear to be that much less exacting, but the reality is very different. California’s standard requires the pleading of “ultimate facts,” pleading facts to satisfy each element as does the federal standard. However, unlike federal courts, for most claims plausibility cannot be a consideration, as “in testing a pleading against a demurrer the facts alleged … are deemed to be true, however improbable they may be.” [Del E. Webb Corp. v. Structural Materials Co. (1981) 123 CA3d 593, 604, 176 CR 824, 829.
The plausibility standard in federal court worked favorably for a defendant in a case where a securities fraud conspiracy was alleged between a bank and a depositor. U.S. v. Lloyds TSB Bank PLC, 639 F. Supp. 2d 326, 342 (S.D.N.Y. 2009). The Court dismissed the complaint on the grounds it was not plausible that the bank would conspire to commit securities fraud with a depositor where there was no financial incentive for it do so beyond being able to retain the business of the depositor.
Being in federal court makes it more likely that a defendant can defeat a plaintiff’s lawsuit at the outset of the litigation.
Workload of the courts
California Superior Courts, particularly those in counties with large populations, generally have a much heavier case load than the federal courts. Motions are set months out in Los Angeles Superior Court, sometimes longer than 6 months out. The common view among attorneys is that it is far more work to grant a dispositive motion, like a motion for summary judgment or a motion to dismiss, than it is to deny it. A court only need rely on one ground to deny a motion, whereas granting it requires a court to consider each element of the moving party’s burden, and to address the arguments raised by the party opposing the motion. Defendants, who are the parties that typically make dispositive motions, typically prefer the federal courts who have more time and attention to devote to motion practice.
Manner cases are assigned
Some Superior Courts in California have calendaring systems so-called master calendar system. In these systems, the same judge will not handle the entirety of the case. A different judge will hear the motions made in the case, and yet another judge will preside over the trial. A common view among attorneys is that a Judge who has to try a case, is more likely to grant a dispositive motion. A judge is more willing to put in the work to grant a motion now, if it means avoiding a lot more work further down the line. In the federal courts, a case is always assigned to a judge for all purposes.
Because class certification is deemed procedural law, federal courts are able to rely on federal precedent and statutes when determining whether to grant class certification. Because federal courts do not restrict the ability of parties to rely on trial court precedent, there is generally more law to rely on than in California courts. In California courts, trial court rulings have no precedential value and a significant portion of appellate decision are non-published and thus non-citable. Having more law typically inures to the benefit of a defendant, particularly on class certification, where there is a greater likelihood that a defendant will locate an analogous case to support an argument that plaintiff has not met his burden on the many gatekeeping requirements to certification of a class action. However, the current state of the law is such that with respect to the ascertainability requirement, (determining who is a member of the alleged class), California courts are more demanding. See Noel v. Thrifty Payless, Inc. (2017) 17 Cal.App.5th 1315, 1321; see also Briseno v. ConAgra Foods, Inc., 844 F.3d 1121 (9th Cir. 2017).
Unanimity of a verdict
In the rare instances where class actions do go trial, the requirement in California courts that only 9 of 12 jurors agree on the verdict in a civil trial favors plaintiffs. Plaintiff need only convince 75%. In contrast, plaintiff must convince all 12 jurors in a federal trial that he has met his burden.
The requirements for removing a case from State Court to Federal Court using CAFA
For a federal court to be able to hear a case, there must be federal jurisdiction over the dispute. CAFA expands federal jurisdiction by broadening the reach of traditional diversity jurisdiction. To understand the impact of CAFA its useful to consider the state of affairs prior to its passage.
Requirements of traditional diversity jurisdiction
Traditional diversity jurisdiction posed two substantial problems for class actions. First, to remove a case from state court to federal court on the basis of diversity jurisdiction, there must be total diversity, in that no plaintiff and defendant are from the same state. With respect to class cases, that presented a problem because plaintiffs would simply define the class to include persons from the same jurisdiction as a defendant.
Second, traditional diversity jurisdiction requires that the controversy be valued at over $75,000. With respect to class cases, this means that the value of the case to each class member must be $75,000 or more. In other words, the value of the claims of each class member cannot be considered in the aggregate.
Third, all defendants who have been served with the complaint must consent to the removal. This presents significant difficulty. For one, it can be difficult to determine who has been served. The best way of doing this is to determine for whom a proof of service has been filed. Once that is ascertained, contact needs to be made with the defendants that have been served to determine whether they consent to the removal. To indicate consent each defendant then files a consent to the removal with the court.
Requirements of CAFA Jurisdiction
For there to be jurisdiction pursuant to CAFA (1) the action must be a class action with over 100 putative class members, (2) there must be minimal diversity, in that at least one defendant is a citizen of a state that is different from the state of at least one defendant, (3) the total value of the claims against the defendants must be greater than $5 million. CAFA is codified at 28 U.S.C. § 1332(d). To remove a defendant files a notice of removal and pleads sufficient facts to establish that the requirements of CAFA jurisdiction have been met. The same pleading requirements set-forth in Federal Rule of Civil Procedure 8(a) apply. Dart Cherokee Basin Operating Co. v. Owens, 135 S. Ct. 547 (2014). If the removal is challenged, the defendant must establish by a preponderance of the evidence that the requirements for removal have been satisfied. Rea v. Michaels Stores Inc. (9th Cir. 2014) 742 F.3d 1234, 1239.
CAFA makes it so that there is jurisdiction for a class action regardless of whether there is a defendant who is a citizen of the same state as a plaintiff, as long as there is at least one defendant from a different state than one plaintiff. There are limited exceptions to this. There is a “home-state exception” which applies if two-thirds of the class and the “primary defendants” are citizens of the state in which the action was originally filed. 28 U.S.C. § 1332(d)(4)(A). The “local controversy” exception applies if a number of criteria are met:
- greater than two thirds of the class are citizens of the state in which the action was originally filed,
- at least one defendant from which significant relief is sought, whose conduct forms a significant basis of the claims, is a citizen of the state in which the action was originally filed,
- the principal injuries were incurred in the state where the action was originally filed,
- and for a three year period before the filing of the action no other class action has been filed asserting similar factual allegation against any of the defendants.
There are additional exceptions for government entities, and certain securities and corporate governance claims.
Amount in controversy requirement
CAFA allows the value of all of the putative class members’ claims to be added together to determine if the $5,000,000 amount in controversy requirement is met. While this number is far greater than the $75,000 required by traditional diversity jurisdiction, it is exponentially more easily met as it is extremely rare that every individual member of a putative class has $75,000 or more at stake in the litigation.
While one only needs to plead that the requirements of CAFA jurisdiction have been met, plaintiff may challenge the removal by filing a motion for remand. In opposition a defendant must establish by a preponderance of the evidence that the requirements are met. If diversity jurisdiction is the basis for the removal, plaintiff has 30 days from the date of filing to file a motion to remand, which is true for removal pursuant to CAFA as CAFA is a species of diversity jurisdiction. Given the relatively short time-table that a motion for remand must be filed, it makes sense to begin marshalling the evidence to ensure that it can be established by a preponderance of the evidence that the CAFA requirements have been met. Prior to CAFA diversity jurisdiction was a virtual impossibility to establish in class cases. With proper pleading and having the necessary evidence at the ready to oppose a potential motion to remand, class defendants can now ensure that their case will be heard in the federal courts.