CAFA (Class Action Fairness Act of 2005) and Rule 23 – A General Overview

May 13, 2006 | By: Michael J. Hassen

CAFA (Class Action Fairness Act of 2005) and Rule 23 – A General Overview for the Class Action Defense Lawyer

Class action litigation is rampant, and all too often class action lawsuits cause more injury than the wrong they sought to redress. These actions seem driven by a desire to maximize attorney fees rather than to serve the public. A 1995 House Conference Report, for example, enumerated ways in which abusive class actions have hurt the U. S. economy. See, H.R.Rep. No. 104-369, p. 31 (1995). These concerns led to sweeping reforms in federal securities law class actions through the enactment of SLUSA (Securities Litigation Uniform Standards Act) in 1998. Abuse of class action lawsuits also led to the enactment of CAFA (Class Action Fairness Act of 2005).

Class actions may serve an important function. The preamble to CAFA (Class Action Fairness Act of 2005) states, “Class-action lawsuits are an important and valuable part of the legal system when they permit the fair and efficient resolution of legitimate claims of numerous parties by allowing the claims to be aggregated into a single action against a defendant that has allegedly caused harm.”

In federal court, class actions are governed by Rule 23 of the Federal Rules of Civil Procedure. The procedure for filing a class action is simple enough; the difficulty arises when one seeks to certify the class.

A lawsuit is filed with one or more plaintiffs purporting to bring the action on behalf of a putative class. (This is not to suggest that the court may only approve a plaintiff-class. On the contrary, it is possible to seek certification of a defendant class. See e.g., ASARCO Inc. v. Kadish, 490 U.S. 605, 610, 109 S.Ct. 2037, 2041 (1989) (noting that trial court certified the case as a defendant class action); Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 n.3, 105 S.Ct. 2965, 2974 (1985) (noting that opinion “is limited to those class actions which seek to bind known plaintiffs concerning claims wholly or predominately for money judgments”and “[does not] address class actions where the jurisdiction is asserted against a defendant class.” It is far more common, however, for a suit to seek certification of a plaintiff class.)

The class must be represented by competent, experienced counsel, and must seek redress on the grounds that the class members have suffered a common wrong and that the plaintiffs’ claims are typical of the other members of the class. It must also be shown that the class is of such a size so as to render joinder of all class members as party-plaintiffs impractical. For example, the class representatives may allege an automobile manufacturer sold vehicles that contained defective transmissions, see Werwinski v. Ford Motor Co., 286 F.3d 661 (3rd Cir. 2002), or may seek to pursue a products liability case against a pharmaceutical drug company, see In re Rezulin Products Liability Litigation, 361 F.Supp.2d 268 (S.D.N.Y. 2005).

In state court, class actions are governed by state law. Many state laws track FRCP Rule 23, but other states, such as California, have their own statutory scheme that has evolved independently from the federal scheme. The general concepts remain, however, largely the same. The putative class representatives must show that they have claims and suffered wrongs consistent with the other class members, and that they will adequately represent the interests of the other class members. But various jurisdictions analyze the “numerosity” requirement differently.

There are several potential benefits to the plaintiff-class. First and foremost, class actions allow individuals who have been injured to seek redress when it would not otherwise be economical for them to do so. If the recovery of an individual or a small group of plaintiffs would be small, then the plaintiffs would not be able to find counsel willing to handle their matter on a contingency fee basis, and the size of the recovery would not warrant that the plaintiffs pay counsel an hourly rate to represent them in litigation. As the Supreme Court observed, “‘The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone’s (usually an attorney’s) labor.’” Amchem Products, Inc. v. Windsor, 521 U.S. 591, 617 (1997) (quoting Mace v. Van Ru Credit Corp., 109 F.3d 338, 344 (1997)). In short, when a defendant has engaged in conduct that has caused harm or economic loss to a large group of people, but only minimally so against any individual, then the class action lawsuit provides a vehicle that requires the defendant to compensate those injured.

A second and related benefit is realized in cases where the defendant has only “limited funds” with which to satisfy the judgments that may otherwise be obtained against it. In such cases, a class action permits all injured persons to recover a share of the defendant’s assets; otherwise, those individuals who filed suit and obtained judgments first would deplete the assets of the defendant before other injured persons would be compensated. See e.g., Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999).

Third, if the case truly involves questions of common facts and law, then the class action will permit in a single lawsuit the resolution of what would otherwise require numerous lawsuits, thereby eliminating “days of the same witnesses, exhibits and issues from trial to trial.” Jenkins v. Raymark Indus., Inc., 782 F.2d 468, 473 (5th Cir. 1986) (certifying a class in an asbestos case).

On the other hand, whether the class action is brought under federal or state law, when an action that seeks to certify a class crosses state boundaries, such as a nationwide class action, then the issue of “commonality” is more problematic. In such cases, it will be far more difficult for the plaintiff to demonstrate that the proposed class action is the most judicially efficient method of proceeding with the litigation. If the legal issues involved require that the court apply different state laws to the same set of facts, then the court may conclude that individual issues of law predominate over the common questions of fact and render class certification inappropriate. See Amchem Products, Inc. v. Windsor, 521 U.S. 591, 624, 117 S.Ct. 2231 (1997) (noting that claims requiring the separate application of different states’ laws to substantially varying factual situations defeats the importance of any common questions).

Whether the action is filed in federal court or in state court, the plaintiff must then seek to have the class certified. Some cases may require discovery by the plaintiffs, by the defendants, or by both in order for the court to meaningfully evaluate whether to certify the proposed class(es).

While the class representatives will seek to persuade the court that it should certify the class, the defendant may object on any number of grounds. The use of the word “may” is intentional. A defendant is ill-advised to oppose class certification as a mere “knee-jerk” reaction. Rather, the defendant must evaluate carefully whether it may be beneficial to allow the class to be certified. It may be far less expensive to litigate an issue once such as whether an auto part is defective than to litigate the same question in 50 different states or in potentially hundreds of different lawsuits. A class action also protects the defendant from inconsistent rulings, eliminating the risk that different courts compel the defendant to follow different courses of conduct. It may also serve the defendant to reach a settlement that resolves all future claims (save for those potential claims by class members who “opt-out” of the proposed class); such a settlement, however, will not bind anyone but the named plaintiffs unless the class is certified.

If, however, the defendant decides to challenge class certification, then there are several bases upon which to object. These include challenges to whether the class is sufficiently large, whether the plaintiffs’ claims are typical, whether the case will require litigation of individual facts or application of various state laws, and whether the plaintiff will be an adequate class representative. With respect to whether the action will truly involve common issues of fact and law, sometimes referred to as whether the proposed class action is “superior” to individual lawsuits, the Advisory Committee Note to Rule 23 notes that generally mass torts are “not appropriate” for class treatment because such claims usually require a case-by-case analysis of liability and damages. (A separate article discusses the issue of the adequacy of a class representative.)

While the Class Action Fairness Act of 2005 acknowledges the potential benefits of class actions, it also recognizes the fact that the vehicle has been subject to widespread abuse. That topic is addressed separately.

Comments are closed.