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					                                                CAFA 2005
               Analysis and Implications of the Class Actions Fairness Act of 2005

                         By Richard T. Seymour and Elizabeth J. Cabraser
                            Lieff, Cabraser, Heimann & Bernstein, LLP
                            New York/San Francisco/Washington, D.C.*

Federal Legislation Special Alert<m>Class Action Fairness Act of 2005

§ 1.01 Overview of Class Action Fairness Act of 2005
§ 2.01 Effective Date of CAFA
§ 3.01 Findings and Purposes of CAFA
        [1] Legislative Findings of CAFA
        [2] Statutory Purposes of CAFA
        [3] Comment on Legislative Findings and Statutory Purposes
                [a] National Policy
                [b] Abuses in General
                [c] Disproportionate Payments to Plaintiffs
                [d] Confusing Class Notices
                [e] “Keeping Cases of National Importance Out of Federal Courts”
                [f] Interstate Concerns
                [g] Obligation to Make Class Actions Work
§ 4.01 “Consumer Class Action Bill of Rights”
        [1] 28 U.S.C. § 1711: Definitions
        [2] 28 U.S.C. § 1712: Coupon Settlements
                [a] Text
                [b] Comments
        [3] 28 U.S.C. § 1713: Protection Against Loss by Class Members
                [a] Text
                [b] Comments
        [4] 28 U.S.C. § 1714: Protection Against Discrimination Based on
                Geographic Location
                [a] Text
                [b] Comments
        [5] 28 U.S.C. § 1715: Notifications to Appropriate Federal and State
                Officials
                [a] Text
                [b] Comments
§ 5.01 Expansion of Jurisdiction of Federal Courts
        [1] 28 U.S.C. § 1332(d)(1)—Definitions
                [a] Text
                [b] Comments


*
 This article is modified from a forthcoming copyrighted Matthew Bender (LEXUS) pamphlet, and may be used in
connection with this ALI-ABA program. Further and other use or reprinting requires authorization of the publisher.


420021.1                                                1
       [2] 28 U.S.C. § 1332(d)(2)—Basic Expansion of Jurisdiction
               [a] Text
               [b] Comments
       [3] 28 U.S.C. § 1332(d)(3)—Single-State Exception for In-State
               Defendants, Part I
               [a] Text
               [b] Comments
       [4] 28 U.S.C. § 1332(d)(4)—Single-State Exception for In-State
               Defendants, Part II
               [a] Text
               [b] Comments
       [5] 28 U.S.C. § 1332(d)(5)—Governmental and Small-Class Exceptions
               [a] Text
               [b] Comments
       [6] 28 U.S.C. § 1332(d)(6)—Aggregation of Claims
               [a] Text
               [b] Comments
       [7] 28 U.S.C. § 1332(d)(7)—Determination of Citizenship of Class Members
               [a] Text
               [b] Comments
       [8] 28 U.S.C. § 1332(d)(8)—Application of Subsection Not Dependent on Class
       Certification
               [a] Text
               [b] Comments
       [9] 28 U.S.C. § 1332(d)(9)—Corporate Exceptions
               [a] Text
               [b] Comments
       [10] 28 U.S.C. § 1332(d)(10)—Unincorporated Associations
               [a] Text
               [b] Comments
       [11] 28 U.S.C. § 1332(d)(11)—Mass Actions
               [a] Text
               [b] Comments
§ 6.01 Expansion of Removal, Mass Actions, and Appeals of Remand Orders
       [1] 28 U.S.C. § 1453(a) and (b)—General Provisions
               and Definitions
               [a] Text
               [b] Comments
       [2] 28 U.S.C. § 1453(c)—Review of Remand Orders
               [a] Text
               [b] Comments
       [3] 28 U.S.C. § 1453(d)—Corporate Exceptions
               [a] Text
               [b] Comments




420021.1                                2
§ 7.01 Judicial Conference Study of, and Report on, Class Action Settlements
        [1] Text
        [2] Comments
§ 8.01 Rulemaking Authority of the Supreme Court and the Judicial Conference
        [1] Text
        [2] Comments
§ 9.01 Everything You Know About CAFA May Be Wrong: Provisions of Earlier Versions
of Bill That Disappeared from CAFA
§ 10.01 Issues Regarding Judicial Caseloads
§ 11.01 Constitutional Questions Raised by CAFA
        [1] General Constitutional Concerns
        [2] Tenth Amendment Concerns
        [3] Minority Reaction to Tenth Amendment Issues
Appendix A: Text of Class Actions Fairness Act of 2005 [Public Law 109-2; 119 Stat. 4]




420021.1                                  3
§ 1.01 Overview of Class Action Fairness Act of 2005

        On February 18, 2005, President Bush signed Public Law 109-21 into law. The signing
of the law, which is dubbed the “Class Action Fairness Act of 2005” (CAFA) by Section 1(a),
ended a several-year contest over the legislation between the business supporters of the measure
and national and local consumer, civil rights, and labor organizations opposed to it.

       Although there were no committee reports on this legislation in the 109th Congress, there
were several prior versions,2 some of which had accompanying committee reports.3 These
reports should be used with caution, because they involve different or differently-worded
provisions.

       Section 2 of CAFA sets forth the Congressional findings and purposes of the legislation.
These are discussed in § 3.01.

       Section 3 amends Title 28 of the United States Code by inserting new Sections 1711
through 1715, collectively termed “Consumer Class Action Bill of Rights and Improved
Procedures for Interstate Class Actions.” These are discussed in § 4.01.

        Section 4 amends 28 U.S.C. § 1332 by inserting a new subsection (d), greatly expanding
federal court jurisdiction for “interstate class actions.” This is the most complex part of the Act.
With important exceptions, it abandons the requirement of complete diversity and provides
jurisdiction over class actions in which there is any diversity between any defendant and any
member of the plaintiff class. This part of the Act is discussed in § 5.01.

        Section 5 creates a new Section 1453 in Title 28, allowing the removal of state-court
class actions meeting the amended standards of Section 1332; defining “mass actions” as “class
actions” for most but not all purposes; and expanding defendants’ appeal rights. This section is
discussed in § 6.01.

        Section 6 requires the Judicial Conference of the United States to report to Congress
within one year on various matters relating to settlements of class actions, possibly as a harbinger
of future legislation. This is discussed in § 7.01.

       Section 7 of the Act is a superfluous provision. It provides that the amendments to
Federal Rule of Civil Procedure 23 that went into effect on December 1, 2003, “shall take effect
           1
           119 Stat. 4.
           2
           108th Congress: H.R. 1115 (passed by the House of Representatives on June 12, 2003, but not acted on by
the Senate), S. 12, S. 274, S. 1751, and S. 2062.
         107th Congress: H.R. 2341 (passed the House of Representatives March 13, 2002, but not acted on by the
Senate).
         106th Congress: H.R. 1875; S. 353.
         105th Congress: H.R. 3789.
         3
           108th Congress: H.Rep. 108-144 (108th Cong., 1st Sess., June 9, 2003) on H.R. 1115; S. Rep. No. 108-
123 (108th Cong., 1st Sess., July 31, 2003) on S. 274.
         107th Congress: H.Rep. No. 107-370 (107th Cong., 2d Sess., March 12, 2002) on H.R. 2341.
         106th Congress: H.Rep. No. 106-320 (106th Cong., 1st Sess., Sept. 14, 1999) on H.R. 1875; S. Rep. No.
106-420 (106th Cong., 2d Sess., Sept. 22, 2000) on S. 353.
         105th Cong.: H.Rep. No. 105-702 (105th Cong., 2d Sess., Sept. 10, 1998) on H.R. 3789.


420021.1                                                4
on the date of enactment of this Act or on December 1, 2003 (as specified in that order),
whichever occurs first.” These amendments (notably newly expanded notice and settlement
provisions, and provisions for appointment of competitors of class counsel) in fact took effect,
and have been in use by the federal courts, since December 1, 2003.

       Section 8 provides that CAFA does not affect the rulemaking authority of the Supreme
Court and the Judicial Conference. This provision is discussed in § 8.01.

           Section 9 specifies the effective date of CAFA. This provision is discussed in § 2.01.

           Section 9.01 lists provisions dropped from earlier versions of the bill.

           The practical effect of the statute is discussed in § 10.01.

           The constitutional questions raised by the statute are described in § 11.01.

§ 2.01 Effective Date of CAFA

        Section 9 of the statute states: “The amendments made by this Act shall apply to any
civil action commenced on or after the date of enactment of this Act.”

       The term “commenced” refers to the commencement of the action in the court in which it
was originally filed. If the case began in state court, the date of that commencement controls for
purposes of the statute.

        The debate in both the House and Senate described the above language as meaning that
CAFA is not retroactive, and described the language as a moderation of the truly retroactive
language in H.R. 1115,4 passed by the House in the 108th Congress but never acted on by the
Senate.

         There was unanimity on this point from both supporters and opponents of the bill in each
chamber, making the legislative history unusually persuasive. For example, Sen. Dodd, a
supporter of the bill, stated in his description of the changes that led him to support the bill:
“First, it does not apply retroactively, despite those who wanted it to. A case filed before the date
of enactment will be unaffected by any provision of this legislation.” He added: “ Second, this
legislation does not distinguish in any way or alter a pending case.” 151 CONG.REC. S 1080
(daily ed., Feb. 8, 2005). Sen. Kennedy, an opponent of the bill, described a case already in
Massachusetts state court and stated that the measure would not affect that case but he was
worried about future cases. 151 CONG.REC. S 1087 (daily ed., Feb. 8, 2005). Sen. Specter,


           4
             This is the rejected language of H.R. 1115:
           SEC. 8. EFFECTIVE DATE.
              (a) IN GENERAL.—The amendments made by this Act shall apply to—
                     (1) any civil action commenced on or after the date of the enactment of this Act; and
                     (2) any civil action commenced before such date of enactment in which a class certification order
           (as defined in section 1332(d)(1)(C) of title 28, United States Code, as amended by section 4 of this Act) is
           entered on or after such date of enactment.



420021.1                                                    5
Chairman of the Senate Judiciary Committee and a supporter of the bill, stated at 151 C ONG.REC.
S 1225 (daily ed., Feb. 10, 2005):

           I think the Senate bill<m>this may be a little parochial pride<m>is more in keeping with
           an equitable handling of class action bills than is the House bill. For example, the House
           bill would be retroactive and apply to matters now pending in the State courts, which
           would be extraordinarily disruptive of many State court proceedings. I think it is fair and
           accurate to say that the House bill is more restrictive than the Senate bill and our Senate
           bill, I think, is a better measure to achieve the targeted objective of having class actions
           decided in the Federal court with balance for plaintiffs and for defendants as well.

        Supporters and opponents of the bill in the House of Representatives agreed. Rep. Udall,
an opponent, stated at 151 CONG.REC. H 741 (daily ed., Feb. 17, 2005): “Unlike earlier versions,
S. 5 would not have a retroactive effect, so it would not affect pending cases.” Rep. Goodlatte, a
supporter, stated at 151 C ONG.REC. H 753 (daily ed., Feb. 17, 2005): “Since the legislation is not
retroactive, it would absolutely have no effect on the 75 class actions already filed against Merck
in the wake of the Vioxx withdrawal.”

        The federal courts have already been called upon to rule that CAFA is not retroactive, in
response to defendant’s removal of a pending class action to federal court under color of CAFA.
Office Depot removed a Colorado-law wage and hour certified class action to federal court,
contending that the word “commenced” in § 9 of the Act referred to the commencement of the
action in federal court, and that the removal petition accomplished that commencement. In
Pritchett v. Office Depot, __ F. Supp. 2d __, 2005 WL 563979 (D. Colo. March 9, 2005), the
federal court remanded the case to the Colorado state court, holding that the term “commenced”
referred to the original commencement of the action in a court of proper jurisdiction, whether
that was in state or federal court. As the Pritchett decisions notes, while the intention of CAFA
was to broaden access to the federal courts, it does not apply to cases in the pipeline prior to
February 18, 2005; to hold otherwise “would have undesirable and unintended consequences. It
would permit the removal of nearly every presently-pending class in every state court, resulting
in a sudden tidal wave of filings on an already burdened federal judiciary, rather than the
gradual, incremental flow of newly-filed class actions that would result from a purely
prospective application of the Act.”

§ 3.01 Findings and Purposes of CAFA

           [1]    Legislative Findings of CAFA

           Section 2(a) of CAFA states:

                  (a) FINDINGS— Congress finds the following:

                          (1) 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.



420021.1                                            6
                          (2) Over the past decade, there have been abuses of the class action device
                  that have—

                                    (A) harmed class members with legitimate claims and defendants
                            that have acted responsibly;

                                   (B) adversely affected interstate commerce; and

                                   (C) undermined public respect for our judicial system.

                         (3) Class members often receive little or no benefit from class actions, and
                  are sometimes harmed, such as where—

                                   (A) counsel are awarded large fees, while leaving class members
                            with coupons or other awards of little or no value;

                                    (B) unjustified awards are made to certain plaintiffs at the expense
                            of other class members; and

                                   (C) confusing notices are published that prevent class members
                            from being able to fully understand and effectively exercise their rights.

                          (4) Abuses in class actions undermine the national judicial system, the free
                  flow of interstate commerce, and the concept of diversity jurisdiction as intended
                  by the framers of the United States Constitution, in that State and local courts
                  are—

                                   (A) keeping cases of national importance out of Federal court;

                                    (B) sometimes acting in ways that demonstrate bias against out-of-
                            State defendants; and

                                    (C) making judgments that impose their view of the law on other
                            States and bind the rights of the residents of those States.

           [2]    Statutory Purposes of CAFA

           Section 2(b) of CAFA states:

                  (b) PURPOSES— The purposes of this Act are to—

                            (1) assure fair and prompt recoveries for class members with legitimate
                  claims;

                         (2) restore the intent of the framers of the United States Constitution by
                  providing for Federal court consideration of interstate cases of national
                  importance under diversity jurisdiction; and




420021.1                                              7
                            (3) benefit society by encouraging innovation and lowering consumer
                  prices.

           [3]    Comment on Legislative Findings and Statutory Purposes

                  [a]       National Policy

        The findings in Section 2(a)(1) and the purpose in Section 2(b)(1) should be taken into
account in every class certification decision. Congress has now publicly endorsed the utility of
class certification, making the certification of classes a matter of national policy, where class
certification provides a fairer and prompter means of obtaining relief for legitimate claims.
Given the multistate provisions of the Act, this national policy includes the certification of
appropriate multistate classes. Judges are required to consider national policy when exercising
their discretion.

                  [b]       Abuses in General

        Section 2(a)(2)<n>(4) cautions judges to be alert to stop class action abuses. Abuses can
occur when either side attempts to interfere with the proper use of Federal Rule of Civil
Procedure 23. Abuses by plaintiffs include imposing a net loss on class members, an abuse
specifically addressed in the findings. Although Congress did not specifically address them, the
caution is worded generally and a number of current abuses should be re-examined in light of
this language:

     •      Sudden filings of class complaints or motions to amend non-class complaints to make
            class allegations, for the illegitimate purpose of creating obstructions to a proper class
            that will be removed only by some disproportionate payment to the obstructive parties or
            their counsel.

     •      Defendant-initiated expansions of existing cases to add or expand class claims for the
            purpose of obstructing an existing or imminent legitimate class action being handled by
            capable counsel, and obtaining a cheap settlement of the additional class claims.

     •      Defendants’ attempts to preclude class treatment by requiring customers and employees
            to submit to arbitration, and barring the arbitration of class claims. Section 2(a)(4)
            speaks directly to the abuse of keeping cases of national importance out of federal court.

       According to the most recent committee reports, Section 2(a)(3) was included in the bill
because of the settlement in Kamilewicz v. Bank of Boston (7th Cir. 1996) 92 F.3d 507, in which
class members were reimbursed for improper charges but their accounts were directly debited for
attorneys’ fees that sometimes exceeded the amounts of the reimbursements,5 and because of
Congressional displeasure with settlements in which class members receive coupons while class
counsel receive cash. A specific provision of the bill addresses coupon settlements; see the
discussion in § 4.01[2][a]. The required report of the Judicial Conference also addresses this
purpose; see the discussion in § 7.01.

           5
          H.Rep. 108-144 (108th Cong., 1st Sess., June 9, 2003) on H.R. 1115 at 16; S. Rep. No. 108-123 (108th
Cong., 1st Sess., July 31, 2003) on S. 274 at 15<n>16.


420021.1                                               8
                  [c]      Disproportionate Payments to Plaintiffs

        Section 2(a)(3)(B) states that “unjustified awards are made to certain plaintiffs at the
expense of other class members.” This language cannot be read as precluding appropriate
incentive awards to class representatives who have suffered the additional delay and risk caused
by bringing their cases as class actions, because the earlier provision barring such awards6 was
struck from the bill as part of the compromise that enabled it to be enacted into law.7

        This language thus cannot be read to bar incentive payments, but should be taken into
account to ensure that incentive payments are not excessive. Similarly, this language should
guide courts in disapproving “buy-offs” that induce plaintiffs in individual cases to make class
allegations, or class representatives to expand class allegations, for the improper purpose of
obstructing a legitimate class action and selling short the interests of class members.

                  [d]      Confusing Class Notices

        Section 2(a)(3)(C) states that “confusing notices are published that prevent class
members from being able to fully understand and effectively exercise their rights.” No provision
of the bill addresses the content of notices to class members, although the amendments to Federal
Rule of Civil Procedure 23 that went into effect on December 1, 2003, addressed that problem.
Section 7 of the bill enacts those amendments into law, but only in the event that December 1,
2003, occurs after February 18, 2005.

                  [e]      “Keeping Cases of National Importance Out of Federal Courts”

        Section 2(a)(4)(A) identifies “keeping cases of national importance out of Federal court”
as an abuse. This language clearly applies to situations in which plaintiffs sue both in-state and
out-of-state defendants whose conduct has contributed to plaintiffs’ injuries, because the statute
eliminates the requirement of complete diversity for class actions meeting the other requirements
of the statute.

        The language of the finding is not limited to any one situation, however, and the plain
meaning of the words applies equally to any procedural or substantive devices the federal courts
have used to deny class certification in cases in which their jurisdiction is based on diversity,
including the imposition of a pro-defendant thumb on the scale to discourage resort to federal
courts. 8

           6
           See the discussion in § 9.01, below.
           7
           Sen. Dodd’s discussion of the 12-part compromise stated:
                   THE COMPROMISE ELIMINATES THE SO-CALLED BOUNTY PROHIBITION IN S. 1751
                   S. 1751 would have prevented civil rights and consumer plaintiffs from being compensated for the
         particular hardships they endure as a result of initiating and pursuing litigation.
                   The compromise deletes the so-called “bounty provision” in S. 1751, thereby allowing plaintiffs to
         receive special relief for enduring special hardships as class members.
         8
           E.g., Pearson v. John Hancock Mut. Life Ins. Co. (1st Cir. 1992) 979 F.2d 254, 259 (reversing judgment
for employee and rejecting a contract claim based on an employee manual, court stated that the dismissal was not
unfair to the plaintiff who, “after all &hellip; deliberately chose to bring this action in federal court when the state
court is equally available to him.” The court further noted that such a litigant “cannot justifiably complain if the
federal court manifests great caution in blazing new state-law trails.”); Werwinski v. Ford Motor Co. (3d Cir. 2002)


420021.1                                                   9
                  [f]      Interstate Concerns

        Section 2(a)(f)(B) identifies as an abuse “sometimes acting in ways that demonstrate bias
against out-of-State defendants,” and Section 2(a)(f)(C) identifies as an abuse “making
judgments that impose their view of the law on other States and bind the rights of the residents of
those States.”

        The Senate Committee Report closest in time to the enactment of S. 5, the Senate version
of the legislation that was ultimately accepted by the House and enacted into law, did not
indicate any disagreement with the existing federal-court rule allowing the law of one State to be
used in a multistate class when this meets constitutional requirements. The 2003 Senate Report
on S. 274 stated at 61: “States should not apply their own laws to matters with which they have
no significant contact. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 821<n>22 (1985).”9

                  [g]      Obligation to Make Class Actions Work

        The combined purposes stated in Section 2(b)(1) and (2) are to “(1) assure fair and
prompt recoveries for class members with legitimate claims,” and “(2) restore the intent of the
framers of the United States Constitution by providing for Federal court consideration of
interstate cases of national importance under diversity jurisdiction.”

        This expression of Congressional intent should be taken into account in considering the
permissibility of contracts of adhesion forced on consumers and employees as a condition of
dealing or employment, to prevent the assertion of class claims in arbitration or otherwise.
Similarly, this provision favors the certification of multistate state-law classes and precludes the
use of any judicial presumption against liability.




286 F.3d 661, 680 (dismissing tort claims involving defective automobile transmissions, and stating: “Finally, even
if we were torn between two competing yet sensible interpretations of Pennsylvania law and did not find the district
court's deductive reasoning to be persuasive, we should opt for the interpretation that restricts liability, rather than
expands it, until the Supreme Court of Pennsylvania decides differently”); Villegas v. Princeton Farms, Inc. (7th
Cir. 1990) 893 F.2d 919, 925 (stating that “federal court is not the place to press innovative theories of state law”);
Birchler v. Gehl (7th Cir. 1996) 88 F.3d 518, 521 (“When we are faced with opposing plausible interpretations of
state law, we generally choose the narrower interpretation which restricts liability, rather than the more expansive
interpretation which creates substantially more liability.&ensp;&hellip; We avoid speculation about trends in
diversity cases: ‘our policy will continue to be one that requires plaintiffs desirous of succeeding on novel state law
claims to present those claims initially in state court.’&thinsp;”) (citations omitted); Trimble v. Asaco (8th Cir. 2000)
232 F.3d 946, 963 (dismissing state law medical monitoring claims brought for residents near a Nebraska lead
smelter and refinery, declaring that it would be “imprudent and improper” to expand state law where the highest
state court has not yet ruled on that remedy).
          9
            S. Rep. No. 108-123 (108th Cong., 1st Sess., July 31, 2003) on S. 274. Phillips Petroleum Co. v. Shutts
allows state courts to certify interstate classes, and to apply forum states’ law to the controversy, where there is “a
‘significant contact or significant aggregation of contacts’ to the claims asserted by each member of the plaintiff
class, contacts ‘creating state interests,’ in order to ensure that the choice of Kansas law is not arbitrary or unfair.”
472 U.S. at 821-22 (citation omitted).


420021.1                                                  10
§ 4.01 “Consumer Class Action Bill of Rights”

           [1]    28 U.S.C. § 1711: Definitions

       Section 3 of CAFA adds a new chapter of statutes on class actions to Title 28 of the
United States Code. New Section 1711 states:

           § 1711. Definitions
                  In this chapter:

                                  (1) CLASS—The term “class” means all of the class members in a
                          class action.

                                   (2) CLASS ACTION—The term “class action” means any civil
                          action filed in a district court of the United States under rule 23 of the
                          Federal Rules of Civil Procedure or any civil action that is removed to a
                          district court of the United States that was originally filed under a State
                          statute or rule of judicial procedure authorizing an action to be brought by
                          1 or more representatives as a class action.

                                  (3) CLASS COUNSEL—The term “class counsel” means the
                          persons who serve as the attorneys for the class members in a proposed or
                          certified class action.

                                 (4) CLASS MEMBERS—The term “class members” means the
                          persons (named or unnamed) who fall within the definition of the
                          proposed or certified class in a class action.

                                 (5) PLAINTIFF CLASS ACTION—The term “plaintiff class
                          action” means a class action in which class members are plaintiffs.

                                  (6) PROPOSED SETTLEMENT—The term “proposed
                          settlement” means an agreement regarding a class action that is subject to
                          court approval and that, if approved, would be binding on some or all class
                          members.

           [2]    28 U.S.C. § 1712: Coupon Settlements

                  [a]     Text

           New Section 1712 states:

           § 1712. Coupon settlements
                         (a) CONTINGENT FEES IN COUPON SETTLEMENTS—If a proposed
                  settlement in a class action provides for a recovery of coupons to a class member,
                  the portion of any attorney's fee award to class counsel that is attributable to the


420021.1                                           11
           award of the coupons shall be based on the value to class members of the coupons
           that are redeemed.

                (b) OTHER           ATTORNEY'S          FEE     AWARDS         IN     COUPON
           SETTLEMENTS—

                         (1) IN GENERAL—If a proposed settlement in a class action
                  provides for a recovery of coupons to class members, and a portion of the
                  recovery of the coupons is not used to determine the attorney's fee to be
                  paid to class counsel, any attorney's fee award shall be based upon the
                  amount of time class counsel reasonably expended working on the action.

                         (2) COURT APPROVAL—Any attorney's fee under this
                  subsection shall be subject to approval by the court and shall include an
                  appropriate attorney's fee, if any, for obtaining equitable relief, including
                  an injunction, if applicable. Nothing in this subsection shall be construed
                  to prohibit application of a lodestar with a multiplier method of
                  determining attorney's fees.

                  (c) ATTORNEY'S FEE AWARDS CALCULATED ON A MIXED
           BASIS IN COUPON SETTLEMENTS—If a proposed settlement in a class action
           provides for an award of coupons to class members and also provides for
           equitable relief, including injunctive relief—

                          (1) that portion of the attorney's fee to be paid to class counsel that
                  is based upon a portion of the recovery of the coupons shall be calculated
                  in accordance with subsection (a); and

                          (2) that portion of the attorney's fee to be paid to class counsel that
                  is not based upon a portion of the recovery of the coupons shall be
                  calculated in accordance with subsection (b).

                  (d) SETTLEMENT VALUATION EXPERTISE—In a class action
           involving the awarding of coupons, the court may, in its discretion upon the
           motion of a party, receive expert testimony from a witness qualified to provide
           information on the actual value to the class members of the coupons that are
           redeemed.

                   (e) JUDICIAL SCRUTINY OF COUPON SETTLEMENTS—In a
           proposed settlement under which class members would be awarded coupons, the
           court may approve the proposed settlement only after a hearing to determine
           whether, and making a written finding that, the settlement is fair, reasonable, and
           adequate for class members. The court, in its discretion, may also require that a
           proposed settlement agreement provide for the distribution of a portion of the
           value of unclaimed coupons to 1 or more charitable or governmental
           organizations, as agreed to by the parties. The distribution and redemption of any
           proceeds under this subsection shall not be used to calculate attorneys' fees under
           this section.


420021.1                                    12
                  [b]    Comments

        The statute does not define the term “coupon,” but presumably uses the term in its
ordinary sense of offering a discount on a future purchase of an item or services from the entity
offering the coupon. There are also settlements that provide class members with certificates,
sometimes for substantial amounts, that are redeemable for cash at face value, or with
replacement merchandise, full services, etc. Indeed, there can be consumer class actions arising
from the failure to honor coupons, in which complete relief is provided by requiring the
defendant to honor the previously-rejected coupons. Whether the latter two situations fit within
this provision is a matter for future litigation.

       In Section 1712(b)(2), Congress has expressly recognized multipliers on lodestars as a
means of providing a reasonable attorney’s fee. Courts should consider this Congressional
recognition in cases not involving coupons, when plaintiffs’ counsel seek multipliers.

         Section 1712(b) and (c) also explicitly recognize that different forms of relief may justify
different approaches in the award of fees. Courts are required to award fees for prospective
relief that does not create a common fund, and may award a multiplier of the lodestar when such
prospective relief is obtained. This provision encourages plaintiffs’ attorneys to seek such relief.

         Turning to fees for the recovery of “coupons,” Section 1712(a) bases the award “on the
value to class members of the coupons that are redeemed.” One means of doing so is to use
some system to track the redemption of coupons by class members, to postpone the fee award
until the end of the period in which class members can exercise coupons or to make the award in
stages based on partial redemptions, and to award fees based on actual redemptions to date.
Because Section 1712(d) expressly allows expert testimony “on the actual value to class
members of the coupons that are redeemed,” the statute also contemplates fee awards at the time
of settlement, based on estimated redemption rates.

       Section 1712(e) does not make clear whether it refers only to the grant of final approval,
or whether it also refers to the grant of preliminary approval. It requires a hearing whether or not
there are any objections to the proposed settlement, but its standard for approval does not
represent any change in existing law.

        Section 1712(e) will discourage cy pres awards of unclaimed coupons by providing that
the cy pres award will not be considered in calculating attorney’s fees. However, this provision
may encourage cy pres awards of unclaimed funds in all other settlements and judgments,
because by implication the cy pres awards in non-coupon cases will bear their proportionate
shares of the fees and expenses that made the awards possible.

           [3]    28 U.S.C. § 1713: Protection Against Loss by Class Members

                  [a]    Text

           New Section 1713 provides:

           § 1713. Protection against loss by class members



420021.1                                         13
                   The court may approve a proposed settlement under which any class member is
           obligated to pay sums to class counsel that would result in a net loss to the class member
           only if the court makes a written finding that nonmonetary benefits to the class member
           substantially outweigh the monetary loss.

                    [b]      Comments

       This provision is the Congressional response to the Bank of Boston case,10 and few if any
cases will be affected by this provision.

       By implication, this provision may lend support to injunctive class actions for abatement
of nuisances, particularly those injurious to health or that diminish the value of property, in
which the court assesses class members for an appropriate amount to pay their shares of
reasonable fees and costs in abating the nuisance.

           [4]      28 U.S.C. § 1714: Protection Against Discrimination Based on
                    Geographic Location

                    [a]      Text

           New Section 1714 states:

           § 1714. Protection against discrimination based on geographic location

                   The court may not approve a proposed settlement that provides for the payment of
           greater sums to some class members than to others solely on the basis that the class
           members to whom the greater sums are to be paid are located in closer geographic
           proximity to the court.

                    [b]      Comments

         Class-action practitioners are hard-pressed to think of cases in which awards were based
on geographic proximity to the court. Neither the House nor Senate committee reports identified
a single case. The Senate Committee Report closest in time to the enactment of CAFA cited
only the testimony of Lawrence Mirel, the District of Columbia insurance commissioner,11 but
all his testimony stated was that any such distinction would be “the worst sort of ‘home cooking’
that is fostered by the existing system.” Unlike other parts of his testimony that identified
specific cases with which he was concerned, this part of his testimony simply assumed that the
phenomenon existed.

       The House committee report on H.R. 1115 took pains to limit the effect of this
provision:12

           The Committee wishes to emphasize that this provision is intended solely to prohibit
           circumstances in which the preferential payments have no legitimate legal basis. For
           10
              Kamilewicz v. Bank of Boston (7th Cir. 1996) 92 F.3d 507.
           11
              S. Rep. No. 108-123 (108th Cong., 1st Sess., July 31, 2003) on S. 274, at 23.
           12
              H.Rep. 108-144 (108th Cong., 1st Sess., June 9, 2003) at 34.


420021.1                                                   14
           example, it is perfectly appropriate for a settlement of an environmental class action to
           differentiate settlement payment amounts based on a claimant’s proximity to an alleged
           chemical spill. This provision is not intended to affect such a determination. But where
           putative class members’ claims are legally and factually indistinguishable, it is
           inappropriate to give one class member extra settlement benefits merely because he or
           she resides in (or closer to) the county where the court sits.

           [5]    28 U.S.C. § 1715: Notifications to Appropriate Federal and State
                  Officials

                  [a]    Text

           The text of new Section 1715 is as follows:

           Section 1715. Notifications to appropriate Federal and State officials

                         (a) DEFINITIONS—

                                (1) APPROPRIATE FEDERAL OFFICIAL—In this section, the
                         term “appropriate Federal official” means—

                                         (A) the Attorney General of the United States; or

                                          (B) in any case in which the defendant is a Federal
                                 depository institution, a State depository institution, a depository
                                 institution holding company, a foreign bank, or a nondepository
                                 institution subsidiary of the foregoing (as such terms are defined in
                                 section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)),
                                 the person who has the primary Federal regulatory or supervisory
                                 responsibility with respect to the defendant, if some or all of the
                                 matters alleged in the class action are subject to regulation or
                                 supervision by that person.

                                 (2) APPROPRIATE STATE OFFICIAL—In this section, the term
                         “appropriate State official” means the person in the State who has the
                         primary regulatory or supervisory responsibility with respect to the
                         defendant, or who licenses or otherwise authorizes the defendant to
                         conduct business in the State, if some or all of the matters alleged in the
                         class action are subject to regulation by that person. If there is no primary
                         regulator, supervisor, or licensing authority, or the matters alleged in the
                         class action are not subject to regulation or supervision by that person,
                         then the appropriate State official shall be the State attorney general.

                          (b) IN GENERAL—Not later than 10 days after a proposed settlement of
                  a class action is filed in court, each defendant that is participating in the proposed
                  settlement shall serve upon the appropriate State official of each State in which a
                  class member resides and the appropriate Federal official, a notice of the proposed
                  settlement consisting of—


420021.1                                           15
                   (1) a copy of the complaint and any materials filed with the
           complaint and any amended complaints (except such materials shall not be
           required to be served if such materials are made electronically available
           through the Internet and such service includes notice of how to
           electronically access such material);

                  (2) notice of any scheduled judicial hearing in the class action;

                  (3) any proposed or final notification to class members of—

                          (A)(i) the members' rights to request exclusion from the
                  class action; or

                         (ii) if no right to request exclusion exists, a statement that
                  no such right exists; and

                          (B) a proposed settlement of a class action;

                  (4) any proposed or final class action settlement;

                 (5) any settlement or other agreement contemporaneously made
           between class counsel and counsel for the defendants;

                  (6) any final judgment or notice of dismissal;

                  (7)     (A) if feasible, the names of class members who reside in
                  each State and the estimated proportionate share of the claims of
                  such members to the entire settlement to that State's appropriate
                  State official; or

                          (B) if the provision of information under subparagraph (A)
                  is not feasible, a reasonable estimate of the number of class
                  members residing in each State and the estimated proportionate
                  share of the claims of such members to the entire settlement; and

                  (8) any written judicial opinion relating to the materials described
           under subparagraphs (3) through (6).

           (c) DEPOSITORY INSTITUTIONS NOTIFICATION—

                    (1) FEDERAL AND OTHER DEPOSITORY INSTITUTIONS—
           n any case in which the defendant is a Federal depository institution, a
           depository institution holding company, a foreign bank, or a non-
           depository institution subsidiary of the foregoing, the notice requirements
           of this section are satisfied by serving the notice required under subsection
           (b) upon the person who has the primary Federal regulatory or supervisory
           responsibility with respect to the defendant, if some or all of the matters



420021.1                            16
                         alleged in the class action are subject to regulation or supervision by that
                         person.

                                 (2) STATE DEPOSITORY INSTITUTIONS—In any case in
                         which the defendant is a State depository institution (as that term is
                         defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C.
                         1813)), the notice requirements of this section are satisfied by serving the
                         notice required under subsection (b) upon the State bank supervisor (as
                         that term is defined in section 3 of the Federal Deposit Insurance Act (12
                         U.S.C. 1813)) of the State in which the defendant is incorporated or
                         chartered, if some or all of the matters alleged in the class action are
                         subject to regulation or supervision by that person, and upon the
                         appropriate Federal official.

                         (d) FINAL APPROVAL—An order giving final approval of a proposed
                  settlement may not be issued earlier than 90 days after the later of the dates on
                  which the appropriate Federal official and the appropriate State official are served
                  with the notice required under subsection (b).

                         (e) NONCOMPLIANCE IF NOTICE NOT PROVIDED—

                                 (1) IN GENERAL—A class member may refuse to comply with
                         and may choose not to be bound by a settlement agreement or consent
                         decree in a class action if the class member demonstrates that the notice
                         required under subsection (b) has not been provided.

                                 (2) LIMITATION—A class member may not refuse to comply
                         with or to be bound by a settlement agreement or consent decree under
                         paragraph (1) if the notice required under subsection (b) was directed to
                         the appropriate Federal official and to either the State attorney general or
                         the person that has primary regulatory, supervisory, or licensing authority
                         over the defendant.

                                 (3) APPLICATION OF RIGHTS—The rights created by this
                         subsection shall apply only to class members or any person acting on a
                         class member's behalf, and shall not be construed to limit any other rights
                         affecting a class member's participation in the settlement.

                         (f) RULE OF CONSTRUCTION—Nothing in this section shall be
                  construed to expand the authority of, or impose any obligations, duties, or
                  responsibilities upon, Federal or State officials.

                   (b) TECHNICAL AND CONFORMING AMENDMENT—The table of chapters
           for part V is amended by inserting after the item relating to chapter 113 the following:

           “114. Class Actions ……………………..……………………………………… 1711.”




420021.1                                           17
                 [b]      Comments

        Defendants bear the workload burden of this section, which requires them to identify the
appropriate officials, gather the necessary papers and other information, determine the residence
of class members, perform state-by-state calculations of the relief for class members, and make
duplicative reports to the officials. Defendants also suffer the penalty for any mistakes in
providing such notice: “opt outs” by any or all class members long after the time for normal “opt
outs” has expired. Section 1712(e) does not impose any outer time limit on such “opt outs,” and
does not expressly require the class member “opting out” to return the member’s share of the
settlement proceeds.

         The calculations required by Section 1714(b)(7)(A) or (B) may be difficult to perform in
advance of the filing of proof-of-claim forms. Mailed notices to class members are frequently
returned undelivered, and their current addresses then must be researched and identified. We
live in a mobile society.13

        Section 1714(b)(5) requires that all contemporaneous side agreements between class
counsel and defense counsel be included in the notice. There is no confidentiality provision in
the statute, and it is not at all clear that the court has the power to impose confidentiality
constraints on nonparties, so these agreements may become public.

       Section 1714(d) delays the grant of final approval until 90 days after the required notices
have been given. Plaintiffs’ attorneys should negotiate for the proceeds to be placed in a trust
account when this does not trigger adverse tax consequences for the fund, or to be held by the
defendants when they are fiscally stable, with interest on the settlement fund to be paid to the
class.

        Section 1714 does not state what the notified officials are to do with this information. It
creates no express statutory right of standing, objection, or intervention, but officials may feel
that they are entitled to do something with the information and the 90-day stay, and may seek to
object or intervene in any case in which they see something they do not like, or in which it seems
politically advantageous to do so. The real parties in interest may suffer from the potential of
this provision to turn every settlement into a potential political football.

§ 5.01 Expansion of Jurisdiction of Federal Courts

           [1]   28 U.S.C. § 1332(d)(1)—Definitions

                 [a]      Text

        Section 4 of CAFA amends 28 U.S.C. § 1332. The text of new Section 1332(d)(1) states
as follows:

           13
            From March 1999 to March 2000, 43.4 million Americans moved, out of a total population of 270.2
million, or 16.1 percent of the total. Jason Schachter, “Geographical Mobility: Population Characteristics: March
1999 to March 2000,” U.S. Census Bureau, CURRENT POPULATION REPORTS (May 2001). Although some may
move more than once, just adding the numbers suggests that it takes only between three and four years for the
majority of the class to move. Some of these moves are across state lines.


420021.1                                               18
           SEC. 4. FEDERAL DISTRICT COURT JURISDICTION FOR INTERSTATE
           CLASS ACTIONS.

                  (a) APPLICATION OF FEDERAL DIVERSITY JURISDICTION—Section 1332
           is amended—

                         (1) by redesignating subsection (d) as subsection (e); and

                         (2) by inserting after subsection (c) the following:

                  (d)(1) In this subsection—

                                   (A) the term “class” means all of the class members in a class
                         action;

                                 (B) the term “class action” means any civil action filed under rule
                         23 of the Federal Rules of Civil Procedure or similar State statute or rule
                         of judicial procedure authorizing an action to be brought by 1 or more
                         representative persons as a class action;

                                 (C) the term “class certification order” means an order issued by a
                         court approving the treatment of some or all aspects of a civil action as a
                         class action; and

                                 (D) the term “class members” means the persons (named or
                         unnamed) who fall within the definition of the proposed or certified class
                         in a class action.

                  [b]    Comments

        The statute does not state whether the definition of “class” is fixed at the time of original
filing, changes with each amended complaint as discovery allows further refinement, and/or
changes again with the class definition and any changes in the class definition. The same
ambiguity applies to the definition of “class member.”

       Because the statute provides that diversity can be based on the citizenship of a single
class member, the ambiguity can have a significant effect on cases.

           [2]    28 U.S.C. § 1332(d)(2)—Basic Expansion of Jurisdiction

                  [a]    Text

           This new subsection states as follows:

                         (2) The district courts shall have original jurisdiction of any civil action in
                  which the matter in controversy exceeds the sum or value of $5,000,000,
                  exclusive of interest and costs, and is a class action in which—




420021.1                                            19
                                       (A) any member of a class of plaintiffs is a citizen of a State
                               different from any defendant;

                                       (B) any member of a class of plaintiffs is a foreign state or a citizen
                               or subject of a foreign state and any defendant is a citizen of a State; or

                                      (C) any member of a class of plaintiffs is a citizen of a State and
                               any defendant is a foreign state or a citizen or subject of a foreign state.

                      [b]      Comments

        Taking into account the citizenship of a nonparty is a significant departure from the
traditional understanding of Article III of the Constitution.14 There is a split among the Circuits
on the question whether the claims of absent class members can be considered in establishing the
jurisdiction of a federal court. Gibson v. Chrysler Corp., 261 F.3d 927 (9th Cir, 2001), cert.
denied, 534 U.S. 1104 (2002), construed 28 U.S.C. § 1367 and held that the claims of unnamed
class members cannot be taken into account in determining whether the district court possesses
jurisdiction of the case.15 However, three cases in the Eleventh Circuit suggested, without
           14
                The Final Report of the ABA Class Action Task Force addressed this question at 4 n.11:

                      The Supreme Court’s approval of “minimal diversity” in State Farm Fire & Casualty Co. v.
           Tashire, 386 U.S. 523 (1967) was for statutory interpleader in which there was minimal diversity between
           parties, while the proposed minimal diversity in the class action context would rely on the citizenship of
           any class member rather than that of formal parties. Some argue that when a proposed class action is filed,
           a constitutional “controversy” exists only between the named plaintiffs and the defendant, and diversity
           jurisdiction cannot be constitutionally maintained prior to certification and some reasonable assurance that
           there is, in fact, diversity. Others, in response, argue that the complete diversity required by Strawbridge v.
           Curtis, 3 Cranch 267 (1806), was derived from the statute and not the Constitution and that the status of
           non-party class members has been recognized regarding a variety of functions in class action cases. See
           Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985); American Pipe & Construction Co. v. Utah, 414
           U.S. 538 (1974); Zahn v. International Paper Co., 414 U.S. 291 (1973). They argue that statutes and cases
           have made practical determinations about who constitutes a party, and “minimal diversity” would be a
           determination by Congress that unnamed class members shall be considered parties prior to certification.
           The recent Supreme Court decision in Devlin v. Scardelletti, 122 S.Ct. 2005 (2002), which held that class
           members other than named representatives could appeal a court’s approval of a settlement, is seen as a
           further indication that the Court would allow “minimal diversity” based on the citizenship of any class
           member. Others maintain that the decision accords absent class members lesser rights than the named
           representatives and recognizes the administrative difficulties in having to consider the citizenship of all
           class members to determine jurisdiction.
           15
                The court stated:

                                Examining only the claims of named class plaintiffs for purposes of the amount-in-
                      controversy requirement in diversity class actions mirrors the treatment of the complete diversity
                      requirement. In both instances, subject matter jurisdiction depends only on the named plaintiffs.
                      . . . We also note that practical considerations support this result. If the claim of an unnamed class
                      member could support removal of the entire action, a removing defendant might be entitled to
                      discovery not merely from named, but also from unnamed, class members. Further, including the
                      claims of unnamed class members is an "impractical and uncertain method of determining federal
                      jurisdiction . . . because those members are free to opt out of the class, and because a denial of
                      class certification would prevent the court from taking jurisdiction over the claims of the unnamed
                      class members. Either of these two events would deprive the district court of jurisdiction over the


420021.1                                                      20
holding, that a claim of an unnamed class member can be considered in determining whether
there is at least one claim satisfying the jurisdictional amount.16 For further discussion of
Constitutional concerns, see § 11.01.

        Aliens resident in a state, even those legally resident, would provide diversity under this
section.

           [3]      28 U.S.C. § 1332(d)(3)—Single-State Exception for In-State
                    Defendants, Part I

                    [a]       Text

           This section states as follows:

                             (3) A district court may, in the interests of justice and looking at the
                    totality of the circumstances, decline to exercise jurisdiction under paragraph (2)
                    over a class action in which greater than one-third but less than two-thirds of the
                    members of all proposed plaintiff classes in the aggregate and the primary
                    defendants are citizens of the State in which the action was originally filed based
                    on consideration of—

                                      (A) whether the claims asserted involve matters of national or
                              interstate interest;

                                      (B) whether the claims asserted will be governed by laws of the
                              State in which the action was originally filed or by the laws of other
                              States;

                                      (C) whether the class action has been pleaded in a manner that
                              seeks to avoid Federal jurisdiction;

                                     (D) whether the action was brought in a forum with a distinct
                              nexus with the class members, the alleged harm, or the defendants;



                    entire class action, and could occur well into the litigation, after the expenditure of substantial time
                    and effort by the parties and the district court.

           Id. at 941 (citations omitted).
           16
            Morrison v. Allstate Indem. Co., 228 F.3d 1255, 1275 (11th Cir. 2000) (“we remand the case to grant the
plaintiffs an opportunity to prove there are class members who can make a ‘good faith’ allegation that their claims
for compensatory damages approach or exceed $75,000.”); Kirkland v. Midland Mortg. Co., 243 F.3d 1277, 1282
(11th Cir. 2001) (“At oral argument, we pressed counsel for Midland for some credible basis upon which Ms.
Kirkland or another class member might satisfy the jurisdictional amount, but counsel was unable to articulate any
such basis.”); Leonard v. Enterprise Rent a Car, 279 F.3d 967, 974 (11th Cir. 2002) (“In short, the conclusory basis
for federal diversity jurisdiction set forth by defendants in the notice of removal are so insufficient that they do not
give rise to a credible assertion that at least one member of the plaintiff class stands to recover damages and other
relief valued in excess of $75,000.”).


420021.1                                                    21
                                        (E) whether the number of citizens of the State in which the action
                               was originally filed in all proposed plaintiff classes in the aggregate is
                               substantially larger than the number of citizens from any other State, and
                               the citizenship of the other members of the proposed class is dispersed
                               among a substantial number of States; and

                                       (F) whether, during the 3-year period preceding the filing of that
                               class action, 1 or more other class actions asserting the same or similar
                               claims on behalf of the same or other persons have been filed.

                      [b]      Comments

        The most important feature of the “single-state exception” is that a class seeking more
than $5 million can be composed exclusively of residents of a state, and all but one of the
primary defendants may be both headquartered and incorporated within the state, but federal-
court original and removal jurisdiction still exists if even one “primary defendant” is out-of-state.

        The Senate committee report 17 most closely proximate in time to S. 5 attempts to provide
detailed guidance as to the construction of this section, but the statute does not incorporate this
discussion, there was no unanimity of viewpoint as to this discussion, the discussion predates the
compromise that resulted in passage and enactment of the statute, and the Senators who authored
the compromise never endorsed this discussion. The attempted guidance is set forth below.

        The term “primary defendant” is not defined in the statute. The Senate committee report
states at 44<n>45:

           For purposes of class actions that are subject to subsections 1332 (d)(3) and (d)(4)(A), the
           Committee intends that the only parties that should be considered “primary defendants”
           are those defendants who are the real “targets” of the lawsuit—i.e., the defendants that
           would be expected to incur most of the loss if liability is found. Thus, the Committee
           intends for the term ‘‘primary defendants’’ to include any person who has substantial
           exposure to significant portions of the proposed class in the action, particularly any
           defendant that is allegedly liable to the vast majority of the members of the proposed
           classes (as opposed to simply a few individual class members). For example, in a class
           action alleging that a drug was defective, the defendant manufacturer of the drug would
           be a primary defendant, since it is a major target of the allegations of the full class.
           However, if several physicians who had each prescribed the drug to a handful of class
           members were also named as defendants, they would not be primary defendants.
           Similarly, in a class action alleging that a type of ladder was defective, both a defendant
           manufacturer that made 60% of the ladders at issue and a defendant manufacturer that
           built 20% of the ladders at issue would be primary defendants, since both are major
           targets of the allegations and have substantial exposure to significant percentages of the
           class in the case. However, if two local hardware stores that each sold a few of the
           ladders were named as defendants, they would not be deemed “primary defendants.”
           Merely alleging that a defendant conspired with other class members to commit

           17
                S. Rep. No. 108-123 (108th Cong., 1st Sess., July 31, 2003).


420021.1                                                     22
           wrongdoing will not, without more, be sufficient to cause a person to be a “primary
           defendant” under this subsection.

        The statute does not allocate the burden of persuasion on the issue of federal-court
jurisdiction, an important omission. Ordinarily, the party asserting federal jurisdiction has the
burden of establishing the facts necessary to jurisdiction. The 2003 Senate committee report
states at 44 without authority that the party opposed to federal-court jurisdiction has the burden
of persuasion on this issue:18

           As noted above, it is the intent of the Committee that the named plaintiff(s) should bear
           the burden of demonstrating that a case should be remanded to state court (e.g., the
           burden of demonstrating that more than two-thirds of the proposed class members are
           citizens of the forum state). Allocating the burden in this manner is important to ensure
           that the named plaintiffs will not be able to evade federal jurisdiction with vague class
           definitions or other efforts to obscure the citizenship of class members. The law is clear
           that, once a federal court properly has jurisdiction over a case removed to federal court,
           subsequent events generally cannot “oust” the federal court of jurisdiction. While
           plaintiffs undoubtedly possess some power to seek to avoid federal jurisdiction by
           defining a proposed class in particular ways, they lose that power once a defendant has
           properly removed a class action to federal court.

Similarly, the Senate report states at 45 that the majority wants plaintiffs to bear the burden of
establishing any exception to the jurisdictional provisions:

           It is the Committee’s intention with regard to each of these exceptions that the party
           opposing federal jurisdiction shall have the burden of demonstrating the applicability of
           an exemption. Thus, if a plaintiff seeks to have a class action remanded under section
           1332(d)(4)(A) on the ground that the primary defendants and two-thirds or more of the
           class members are citizens of the home state, that plaintiff shall have the burden of
           demonstrating that these criteria are met by the lawsuit. Similarly, if a plaintiff seeks to
           have a purported class action remanded for lack of federal diversity jurisdiction under
           subsection 1332(d)(4)(C) (“limited scope” class actions), that plaintiff should have the
           burden of demonstrating that “all matters in controversy” do not “in the aggregate exceed
           the sum or value of $5,000,000, exclusive of interest and costs’’ or that “the number of
           all proposed plaintiff classes in the aggregate is less than 100.”

      The statute does not refer to discovery in the jurisdictional questions. The 2003 Senate
committee report states at 45:

           The Committee understands that in assessing the various criteria established in all of
           these new jurisdictional provisions, a federal court may have to engage in some fact-
           finding, not unlike that which is necessitated by the existing jurisdictional statutes. The
           Committee further understands that in some instances, limited discovery may be
           necessary to make these determinations. However, the Committee cautions that these
           jurisdictional determinations should be made largely on the basis of readily available

           18
                S. Rep. No. 108-123 (108th Cong., 1st Sess., July 31, 2003) at 44.


420021.1                                                     23
           information. Allowing substantial, burdensome discovery on jurisdictional issues would
           be contrary to the intent of these provisions to encourage the exercise of federal
           jurisdiction over class actions. For example, in assessing the citizenship of the various
           members of a proposed class, it would in most cases be improper for the named plaintiffs
           to request that the defendant produce a list of all class members (or detailed information
           that would allow the construction of such a list), in many instances a massive,
           burdensome undertaking that will not be necessary unless a proposed class is certified.
           Less burdensome means (e.g., factual stipulations) should be used in creating a record
           upon which the jurisdictional determinations can be made.

        The above provisions demonstrate the determination of the majority that the jurisdiction
of federal courts may be expanded by the mere ipse dixit of a defendant, and that the plaintiff
should not have the discovery necessary to determine whether jurisdiction is proper—not even a
list of customers or employees, normally available with a computer inquiry lasting mere
seconds—and must rely on whatever the defendant is willing to “stipulate.” It is unlikely that
the federal courts would subscribe to provisions so inconsistent with the limits on their
jurisdiction, with the existing federal discovery rules, and with the requirements of the Due
Process Clause of the Fifth Amendment.

        This part of the statute uses a series of critical but undefined terms and concepts that will
have to be litigated making the results of litigation uncertain while lengthy battles occur over
whether the federal court properly exercised jurisdiction. The following questions are fairly
raised by the undefined terms and language of the statute:

    •      What is a matter of “national interest”? Is this limited to matters affecting the
           functioning of the national government, and/or to its performance of its core roles such as
           national defense?

    •      What is a matter of “interstate interest”? The determination has to be made in cases
           involving diversity of citizenship in which close to two thirds of the class members are
           from a different state, so claims affecting class members in many states are not
           necessarily matters of “interstate interest.”

    •      Does a choice-of-law analysis have to be done in every case falling within this
           subsection?

    •      Which way do the results of the choice-of-law analysis cut? In favor of federal-court
           jurisdiction if the law of one state is to apply, or in favor of federal-court jurisdiction if
           the law of more than one state is to apply?

    •      What does it mean that a class action “has been pleaded in a manner that seeks to avoid
           federal jurisdiction”? Is that a basis for applying Section 4 of CAFA to cases in which
           less than $5 million is at stake, or to cases in which all primary defendants are citizens of
           the forum state? Does a plaintiff’s attorney jeopardize the client’s choice of forum if the
           attorney reads the statute?




420021.1                                            24
    •      In applying the “distinct nexus” test, which of the three factors—class members, alleged
           harm, or defendants—counts most heavily, and which most lightly? What is a court to do
           if they conflict?

    •      In applying the distribution test of subsection (E), what is the meaning of “substantially
           larger,” and what is the meaning of “substantial number”?

    •      In subsection (F), how “similar” must claims be to destroy the exception? If a class
           action is filed against a defendant in Alameda County on behalf of a countywide class, is
           the exception destroyed if a case with “similar” allegations—whatever that means—was
           filed less than three years ago on behalf of the residents of San Diego? Does the class
           action providing the vaccination even have to have been filed in the forum state? Could
           the vaccinating class action have been filed in federal court in the forum state or a
           different state? Could the vaccinating class action have been filed in a different country?

    •      Can in-state defendants destroy the exception by arranging for collusive class actions to
           be filed against them and then dismissed, once every two and one-half years, in all areas
           in which they feel vulnerable?

    •      How is the court to weigh these different criteria, if one or more points in a different
           direction than others, or is neutral?

For further discussion of Constitutional concerns, see § 11.01.



           [4]    28 U.S.C. § 1332(d)(4)—Single-State Exception for In-State
                  Defendants, Part II

                  [a] Text

           This section states as follows:

                  (4) A district court shall decline to exercise jurisdiction under paragraph (2)—

                                  (A)(i) over a class action in which—

                                          (I) greater than two-thirds of the members of all proposed
                                  plaintiff classes in the aggregate are citizens of the State in which
                                  the action was originally filed;

                                             (II) at least 1 defendant is a defendant—

                                                  (aa) from whom significant relief is sought by
                                             members of the plaintiff class;




420021.1                                               25
                                                   (bb) whose alleged conduct forms a significant
                                           basis for the claims asserted by the proposed plaintiff class;
                                           and

                                                  (cc) who is a citizen of the State in which the action
                                           was originally filed; and

                                            (III) principal injuries resulting from the alleged conduct or
                                    any related conduct of each defendant were incurred in the State in
                                    which the action was originally filed; and

                                 (ii) during the 3-year period preceding the filing of that class
                         action, no other class action has been filed asserting the same or similar
                         factual allegations against any of the defendants on behalf of the same or
                         other persons; or

                                 (B) two-thirds or more of the members of all proposed plaintiff
                         classes in the aggregate, and the primary defendants, are citizens of the
                         State in which the action was originally filed.

                  [b]    Comments

        See § 5.01[3][b], for comments on the question of establishing the composition of the
class, access to discovery, and the allocation of the burden of persuasion.

         The seven requirements of subsection (4)(A) are conjunctive. The terms “significant
relief,” “significant basis,” “principal injuries,” “related conduct,” and the place of occurrence of
injuries are not defined, and will have to be litigated over the next decade. Because the language
of subsection (4) was added to the bill after the completion of the most recent committee report,
none of the reports addresses these issues. See § 5.01[3][b], as to whether the filing of any other
class action raising similar issues, anywhere in the world, vaccinates the defendant for three
years against state-court class actions.

           [5]    28 U.S.C. § 1332(d)(5)—Governmental and Small-Class Exceptions

                  [a]    Text

           This section provides:

                        (5) Paragraphs (2) through (4) shall not apply to any class action in
                  which—

                                (A) the primary defendants are States, State officials, or other
                         governmental entities against whom the district court may be foreclosed
                         from ordering relief; or

                                (B) the number of members of all proposed plaintiff classes in the
                         aggregate is less than 100.


420021.1                                              26
                  [b]       Comments

        Subsection 5(A) applies to cases in which the Eleventh Amendment bars suits in federal
court for monetary relief, cases for the enforcement of state laws against state government
agencies,19 and cases involving such intensely local interests that federal courts normally
abstain.20 The Senate committee report most closely proximate in time to the enactment of S. 5
stated at 41 that the purpose of this provision was to prevent manipulation by governmental
entities:

           The purpose of the “state action” cases provision is to prevent states, state officials, or
           other governmental entities from dodging legitimate claims by removing class actions to
           federal court and then arguing that the federal courts are constitutionally prohibited from
           granting the requested relief. This provision will ensure that cases in which such entities
           are the primary targets will be heard in state courts that do not face the same
           constitutional impediments to granting relief.

The Supreme Court has similarly disapproved such manipulation.21

        Subsection 5(B) is a narrow exception that may be even narrower than it appears. It does
not specify whether “the number of all proposed plaintiff classes in the aggregate” refers to
multiple classes in the same lawsuit, or to multiple classes in different lawsuits. The most recent
Senate committee report states that any doubts are to be resolved in favor of federal-court
jurisdiction.22

           [6]    28 U.S.C. § 1332(d)(6)—Aggregation of Claims

                  [a]       Text

           This section provides:



           19
             Pennhurst State School & Hospital v. Halderman (1964) 465 U.S. 89, 104 S. Ct. 900, 79 L. Ed. 2d 67,
held that the Eleventh Amendment bars suits in federal court to enforce state-law obligations against states.
Distinguishing Ex Parte Young (1908) 209 U.S. 123, 29 S. Ct. 441, 52 L. Ed. 714 and Edelman v. Jordan (1974)
415 U.S. 651, 94 S. Ct. 1347, 39 L. Ed. 2d 662, the Pennhurst Court stated: “This need to reconcile competing
interests is wholly absent, however, when a plaintiff alleges that a state official has violated state law. In such a case
the entire basis for the doctrine of Young and Edelman disappears. A federal court’s grant of relief against state
officials on the basis of state law, whether prospective or retroactive, does not vindicate the supreme authority of
federal law. On the contrary, it is difficult to think of a greater intrusion on state sovereignty than when a federal
court instructs state officials on how to conform their conduct to state law. Such a result conflicts directly with the
principles of federalism that underlie the Eleventh Amendment.” Pennhurst State School & Hospital v. Halderman
(1964) 465 U.S. 89, 106, 104 S. Ct. 900, 79 L. Ed. 2d 67
          20
             See generally 17A Moore’s Federal Practice, Ch. 122, Abstention Doctrines (Matthew Bender).
          21
             Lapides v. Board of Regents of University System of Georgia (2002) 535 U.S. 613, 122 S. Ct. 1640, 152
L. Ed. 2d 806.
          22
             “For example, in cases in which it is unclear whether ‘the number of members of all proposed plaintiff
classes in the aggregate is less than 100,’ a federal court should err in favor of exercising jurisdiction over the
matter.” S. Rep. No. 108-123 (108th Cong., 1st Sess., July 31, 2003) at 41.



420021.1                                                   27
                             (6) In any class action, the claims of the individual class members shall be
                      aggregated to determine whether the matter in controversy exceeds the sum or
                      value of $5,000,000, exclusive of interest and costs.

                      [b]      Comments

        This provision overrides, for cases coming within the scope of subsection (d)(6), the rule
that each class member must independently satisfy the jurisdictional requirement, and moots
much of the long-running debate over the application of 28 U.S.C. § 1367 “supplemental
jurisdiction” to class actions.23 The most recent Senate committee report states that any doubts
as to satisfaction of this test should be resolved in favor of federal-court jurisdiction, and that the
amount should be deemed satisfied by any standard that satisfies this test:24

           The Committee intends this subsection to be interpreted expansively. If a purported class
           action is removed pursuant to these jurisdictional provisions, the named plaintiff(s)
           should bear the burden of demonstrating that the removal was improvident (i.e., that the
           applicable jurisdictional requirements are not satisfied). And if a federal court is
           uncertain about whether “all matters in controversy” in a purported class action “do not in
           the aggregate exceed the sum or value of $5,000,000,” the court should err in favor of
           exercising jurisdiction over the case.

           By the same token, the Committee intends that a matter be subject to federal jurisdiction
           under this provision if the value of the matter in litigation exceeds $5,000,000 either from
           the viewpoint of the plaintiff or the viewpoint of the defendant, and regardless of the type
           of relief sought (e.g., damages, injunctive relief, or declaratory relief).&ensp;&hellip;

           The Committee also notes that in assessing the jurisdictional amount in declaratory relief
           cases, the federal court should include in its assessment the value of all relief and benefits
           that would logically flow from the granting of the declaratory relief sought by the
           claimants. For example, a declaration that a defendant’s conduct is unlawful or
           fraudulent will carry certain consequences, such as the need to cease and desist from that
           conduct, which will often “cost” the defendant in excess of $5,000,000. As another
           example, a declaration that a standardized product sold throughout the nation is
           “defective” might well put a case over the $5,000,000 threshold, even if the class
           complaint did not affirmatively seek a determination that each class member was injured
           by the product.

           [7]        28 U.S.C. § 1332(d)(7)—Determination of Citizenship of Class Members

                      [a]      Text

           This provision states:

                             (7) Citizenship of the members of the proposed plaintiff classes shall be
                      determined for purposes of paragraphs (2) through (6) as of the date of filing of

           23
                Zahn v. International Paper Co. (1973) 414 U.S. 291, 94 S. Ct. 505, 38 L. Ed. 2d 511.
           24
                S. Rep. No. 108-123 (108th Cong., 1st Sess., July 31, 2003) at 43<n>44.


420021.1                                                    28
                      the complaint or amended complaint, or, if the case stated by the initial pleading
                      is not subject to Federal jurisdiction, as of the date of service by plaintiffs of an
                      amended pleading, motion, or other paper, indicating the existence of Federal
                      jurisdiction.

                      [b]      Comments

       The filing of an amended pleading can trigger the new jurisdictional provisions. The
one-year “safe harbor” of 28 U.S.C. § 1446(b) does not apply to cases covered by CAFA. See §
6.01[1][a].

           [8]        28 U.S.C. § 1332(d)(8)—Application of Subsection Not Dependent
                      on Class Certification

                      [a]      Text

           This provision states:

                              (8) This subsection shall apply to any class action before or after the entry
                      of a class certification order by the court with respect to that action.

                      [b]      Comments

        The most recent Senate committee report states that this section “is intended to indicate
that the certification status of a class action should not affect its removability.”25 In other words,
a class action that is certified within the 30-day removal period is still removable.

           [9]        28 U.S.C. § 1332(d)(9)—Corporate Exceptions

                      [a]      Text

           This provision states:

                      (9) Paragraph (2) shall not apply to any class action that solely involves a claim—

                                       (A) concerning a covered security as defined under 16(f)(3) of the
                               Securities Act of 1933 (15 U.S.C. 78p(f)(3)) and section 28(f)(5)(E) of the
                               Securities Exchange Act of 1934 (15 U.S.C. 78bb(f)(5)(E));

                                       (B) that relates to the internal affairs or governance of a
                               corporation or other form of business enterprise and that arises under or by
                               virtue of the laws of the State in which such corporation or business
                               enterprise is incorporated or organized; or

                                       (C) that relates to the rights, duties (including fiduciary duties), and
                               obligations relating to or created by or pursuant to any security (as defined

           25
                S. Rep. No. 108-123 (108th Cong., 1st Sess., July 31, 2003) at 45.


420021.1                                                     29
                               under section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1))
                               and the regulations issued thereunder).

                      [b]      Comments

       The Senate committee report closest in time to enactment of CAFA explained these
provisions: 26

           Pursuant to new subsection 1332(d)(8), the Act excepts from new subsection
           1332(d)(2)’s grant of original jurisdiction those class actions that solely involve claims
           that relate to matters of corporate governance arising out of state law. The purpose of
           this provision is to avoid disturbing in any way the federal versus state court
           jurisdictional lines already drawn in the securities litigation class action context by the
           enactment of the Securities Litigation Uniform Standards Act of 1998 (P.L. 105-353).

           The Committee intends that this exemption be narrowly construed. By corporate
           governance litigation, the Committee means only litigation based solely on (a) state
           statutory law regulating the organization and governance of business enterprises such as
           corporations, partnerships, limited partnerships, limited liability companies, limited
           liability partnerships, and business trusts; (b) state common law regarding the duties
           owed between and among owners and managers of business enterprises; and (c) the rights
           arising out of the terms of the securities issued by business enterprises.

           This exemption would apply to a class action relating to a corporate governance claim
           filed in the court of any state. Consequently, it would apply to a corporate governance
           class action regardless of the forum in which it may be filed, and regardless of whether
           the law to be applied is that of the State in which the claim is filed.

           For purposes of this exemption, the phrase “the internal affairs or governance of a
           corporation or other form of business enterprise” is intended to refer to the internal affairs
           doctrine defined by the U.S. Supreme Court as ‘‘matters peculiar to the relationships
           among or between the corporation and its current officers, directors and shareholders
           * * *.” The phrase “other form of business enterprise” is intended to include forms of
           business entities other than corporations, including, but not limited to, limited liability
           companies, limited liability partnerships, business trusts, partnerships and limited
           partnerships.

           The subsection 1332(d)(8) exemption to new section 1332(d) jurisdiction is also intended
           to cover disputes over the meaning of the terms of a security, which is generally spelled
           out in some formative document of the business enterprise, such as a certificate of
           incorporation or a certificate of designations. The reference to the Securities Act of 1933
           contained in new subsection 1332(d)(8)(A) is for definitional purposes only. Since that
           law contains an already well-defined concept of a “security,” this provision simply
           imports the definition contained in the Securities Act.



           26
                S. Rep. No. 108-123 (108th Cong., 1st Sess., July 31, 2003) at 46<n>47 (footnote omitted).


420021.1                                                     30
           [10]   28 U.S.C. § 1332(d)(10)—Unincorporated Associations

                  [a]     Text

           This provision states:

                         (10) For purposes of this subsection and section 1453, an unincorporated
                  association shall be deemed to be a citizen of the State where it has its principal
                  place of business and the State under whose laws it is organized.

                  [b]     Comments

        For cases covered by CAFA, this provision overrules United Steelworkers of America v.
Boulingy, Inc. (1965) 382 U.S. 145, 86 S. Ct. 272, 15 L. Ed. 2d 217, which had held that the
citizenship of the members of an unincorporated association controls for purposes of diversity.

           [11]   28 U.S.C. § 1332(d)(11)—Mass Actions

                  [a]     Text

           This provision states:

                           (11)(A) For purposes of this subsection and section 1453, a mass action
                  shall be deemed to be a class action removable under paragraphs (2) through (10)
                  if it otherwise meets the provisions of those paragraphs.

                          (B)(i) As used in subparagraph (A), the term `mass action' means any civil
                  action (except a civil action within the scope of section 1711(2)) in which
                  monetary relief claims of 100 or more persons are proposed to be tried jointly on
                  the ground that the plaintiffs' claims involve common questions of law or fact,
                  except that jurisdiction shall exist only over those plaintiffs whose claims in a
                  mass action satisfy the jurisdictional amount requirements under subsection (a).

                         (ii) As used in subparagraph (A), the term `mass action' shall not include
                  any civil action in which—

                                  (I) all of the claims in the action arise from an event or occurrence
                          in the State in which the action was filed, and that allegedly resulted in
                          injuries in that State or in States contiguous to that State;

                                    (II) the claims are joined upon motion of a defendant;

                                  (III) all of the claims in the action are asserted on behalf of the
                          general public (and not on behalf of individual claimants or members of a
                          purported class) pursuant to a State statute specifically authorizing such
                          action; or




420021.1                                             31
                               (IV) the claims have been consolidated or coordinated solely for
                       pretrial proceedings.

                       (C)(i) Any action(s) removed to Federal court pursuant to this subsection
               shall not thereafter be transferred to any other court pursuant to section 1407, or
               the rules promulgated thereunder, unless a majority of the plaintiffs in the action
               request transfer pursuant to section 1407.

                       (ii) This subparagraph will not apply—

                               (I) to cases certified pursuant to rule 23 of the Federal Rules of
                       Civil Procedure; or

                              (II) if plaintiffs propose that the action proceed as a class action
                       pursuant to rule 23 of the Federal Rules of Civil Procedure.

                      (D) The limitations periods on any claims asserted in a mass action that is
               removed to Federal court pursuant to this subsection shall be deemed tolled
               during the period that the action is pending in Federal court.

               [b]     Comments

        A CAFA “mass action” is both a broader and narrower concept than a “mass tort,”
although the two could overlap. Most mass torts will not become removable “mass actions,”
because plaintiffs in mass torts typically do not seek joint front-to-back trial of their claims. The
“mass action” provision thus fails to capture mass torts, perhaps its intended target, but it does
have possibly unintended consequences. For example, the state-law claims of sex discrimination
in promotions of 100 or more female employees could be filed and tried together, without any
effort to certify the claims as a class action. The joint trial may be an appropriate means of
amassing stakes high enough to show a pattern of discrimination, making it easier for each
plaintiff to prove her claim. Under subsection (d)(11), such a consolidated set of claims would
fit within the expanded federal-court jurisdiction for original filings and removals. Similarly,
state laws requiring that affected persons “opt in” to obtain a full remedy could come under this
provision.

        There are still important differences between the treatment of mass actions and class
actions under the statute. First, even if the aggregate $5 million jurisdictional requirement is
met, no plaintiff’s case can be removed unless more than $75,000 is at stake in that case.
Second, mass actions are protected against referral to the Multidistrict Litigation panel and
transfer to another district under 28 U.S.C. § 1407 unless (1) a majority of the plaintiffs request
the transfer, (2) the case has been certified under Rule 23, or (3) plaintiffs have requested Rule
23 class certification.

        The exceptions are important. Subsection 11 does not apply to cases in which all of the
claims arise from “an event or occurrence” in the forum state, resulting in injuries in that state or
contiguous states. For example, if a hamburger stand at a highway rest stop sold tainted meat
that sickened or killed hundreds of consumers, a consolidated case could remain in state court if
the plaintiffs were limited to residents of that state and adjoining states. Other cases could be


420021.1                                         32
filed for residents of non-contiguous states. If the defendant then moved to consolidate the
cases, subsection 11 does not apply.

        Subsection 11 does not apply to cases in which “all of the claims in the action are
asserted on behalf of the general public (and not on behalf of individual claimants or members of
a purported class) pursuant to a state statute specifically authorizing such action.” This provision
was inserted to protect California Business and Commerce Code Section 17200 claims.

        Subsection 11 also does not apply to cases in which the claims are consolidated for
pretrial proceedings only, and does not apply to cases in which the defendant moves to join the
claims. Plaintiffs should therefore be able to keep “mass actions” in state court if they file a
series of suits, each with a maximum of 99 plaintiffs.

§ 6.01 Expansion of Removal, Mass Actions, and Appeals of Remand Orders

           [1]    28 U.S.C. § 1453(a) and (b)—General Provisions
                  and Definitions

                  [a]     Text

        The beginning of Section 5 of CAFA, and the text of new Section 1453(a) and (b), state
as follows:

           SEC. 5. REMOVAL OF INTERSTATE CLASS ACTIONS TO FEDERAL
           DISTRICT COURT.

                  (a) IN GENERAL—Chapter 89 is amended by adding after section 1452 the
           following:

                  § 1453. Removal of class actions

                          (a) DEFINITIONS— In this section, the terms “class”, “class action”,
                  “class certification order”, and “class member” shall have the meanings given
                  such terms under section 1332(d)(1).

                          (b) IN GENERAL— A class action may be removed to a district court of
                  the United States in accordance with section 1446 (except that the 1-year
                  limitation under section 1446(b) shall not apply), without regard to whether any
                  defendant is a citizen of the State in which the action is brought, except that such
                  action may be removed by any defendant without the consent of all defendants.

                  [b]     Comments

           See § 4.01[1], for discussion of definitional problems.

       The removal of the one-year “safe harbor” in 28 U.S.C. § 1446(b) is an important change.
If a complaint not meeting the requirements of CAFA is amended at any time in a manner that
then meets the requirements of CAFA, the defendant will have an opportunity to remove it.


420021.1                                           33
        The ability of any defendant to remove the case against the wishes of other defendants
certainly protects the defendants with the most at stake, but also places great disruptive power in
the hands of any defendant, even one with little to lose. The statute does not require that the
defendant removing the case have much at stake, let alone that it be a primary defendant. All
defendants with significant stakes in the controversy may be content with the state court, but any
defendant with a lesser stake can demand whatever the market will bear from co-defendants as
the price of not removing the action to federal court.

           [2]    28 U.S.C. § 1453(c)—Review of Remand Orders

                  [a]     Text

           This provision states:

                          (c) REVIEW OF REMAND ORDERS—

                                  (1) IN GENERAL— Section 1447 shall apply to any removal of a
                          case under this section, except that notwithstanding section 1447(d), a
                          court of appeals may accept an appeal from an order of a district court
                          granting or denying a motion to remand a class action to the State court
                          from which it was removed if application is made to the court of appeals
                          not less than 7 days after entry of the order.

                                  (2) TIME PERIOD FOR JUDGMENT—If the court of appeals
                          accepts an appeal under paragraph (1), the court shall complete all action
                          on such appeal, including rendering judgment, not later than 60 days after
                          the date on which such appeal was filed, unless an extension is granted
                          under paragraph (3).

                                  (3) EXTENSION OF TIME PERIOD—The court of appeals may
                          grant an extension of the 60-day period described in paragraph (2) if—

                                            (A) all parties to the proceeding agree to such extension,
                                    for any period of time; or

                                            (B) such extension is for good cause shown and in the
                                    interests of justice, for a period not to exceed 10 days.

                                  (4) DENIAL OF APPEAL—If a final judgment on the appeal
                          under paragraph (1) is not issued before the end of the period described in
                          paragraph (2), including any extension under paragraph (3), the appeal
                          shall be denied.

                  [b]     Comments

         This provision is extraordinary. Federal court orders remanding cases to state court are
traditionally not subject to federal appellate review, for the simple reason that federal jurisdiction
is lost upon grant of removal. CAFA stands this principle on the head. While CAFA eliminates


420021.1                                              34
interlocutory review of an order denying remand to the state court (although mandamus may be
available in extreme cases), it radically expands the notion of situational federal jurisdiction by
providing discretionary interlocutory review of a remand order, if the petition is filed within
seven days after entry of the order.27 The filing of the petition—not the grant of review, or the
filing of briefs—starts a 60-day period for decision. If the court of appeals is untimely, “the
appeal shall be denied.”

       Continuing the extraordinary nature of this provision, the parties can unanimously jointly
consent to an extension, of any length, for the court to reach its decision. Consent may make
sense to accommodate a briefing and hearing schedule. Otherwise, why would the appellee
consent if it is clear that the court will be unable to rule within 60 days, since denial of consent
would result in a remand?

        If the parties do not grant consent to the court, the court can grant itself a 10-day
extension “for good cause shown and in the interests of justice.” To whom does the court show
“good cause” and who evaluates the showing and decides if good cause has been shown or if the
interests of justice would be served? Itself? The motions panel?

           [3]    28 U.S.C. § 1453(d)—Corporate Exceptions

                  [a]      Text

           This provision states:

                          (d) EXCEPTION— This section shall not apply to any class action that
                  solely involves—

                                   (1) a claim concerning a covered security as defined under section
                           16(f)(3) of the Securities Act of 1933 (15 U.S.C. 78p(f)(3)) and section
                           28(f)(5)(E) of the Securities Exchange Act of 1934 (15 U.S.C.
                           78bb(f)(5)(E));

                                   (2) a claim that relates to the internal affairs or governance of a
                           corporation or other form of business enterprise and arises under or by
                           virtue of the laws of the State in which such corporation or business
                           enterprise is incorporated or organized; or

                                   (3) a claim that relates to the rights, duties (including fiduciary
                           duties), and obligations relating to or created by or pursuant to any
                           security (as defined under section 2(a)(1) of the Securities Act of 1933 (15
                           U.S.C. 77b(a)(1)) and the regulations issued thereunder).

                  [b]      Comments

           See the discussion in § 5.01[9] on the corporate exception in new 28 U.S.C. § 1332(d)(9).

           27
            Fed. R. Civ. P. 6(a) may apply to this time period, excluding intermediate weekdays and holidays, but the
safest course until this provision is definitively construed is to file the petition within seven calendar days.


420021.1                                                 35
§ 7.01 Judicial Conference Study of, and Report on, Class Action Settlements

           [1]    Text

           This provision states:

                  SEC. 6. REPORT ON CLASS ACTION SETTLEMENTS.

                          (a) IN GENERAL— Not later than 12 months after the date of enactment
                  of this Act, the Judicial Conference of the United States, with the assistance of the
                  Director of the Federal Judicial Center and the Director of the Administrative
                  Office of the United States Courts, shall prepare and transmit to the Committees
                  on the Judiciary of the Senate and the House of Representatives a report on class
                  action settlements.

                          (b) CONTENT—The report under subsection (a) shall contain—

                                  (1) recommendations on the best practices that courts can use to
                          ensure that proposed class action settlements are fair to the class members
                          that the settlements are supposed to benefit;

                                  (2) recommendations on the best practices that courts can use to
                          ensure that—

                                             (A) the fees and expenses awarded to counsel in connection
                                    with a class action settlement appropriately reflect the extent to
                                    which counsel succeeded in obtaining full redress for the injuries
                                    alleged and the time, expense, and risk that counsel devoted to the
                                    litigation; and

                                           (B) the class members on whose behalf the settlement is
                                    proposed are the primary beneficiaries of the settlement; and

                                  (3) the actions that the Judicial Conference of the United States has
                          taken and intends to take toward having the Federal judiciary implement
                          any or all of the recommendations contained in the report.

                          (c) AUTHORITY OF FEDERAL COURTS— Nothing in this section
                  shall be construed to alter the authority of the Federal courts to supervise
                  attorneys’ fees.

           [2]    Comments

        This provision seems to contemplate a second round of legislation in connection with
attorney’s fees in class actions, unless federal courts change their practices with respect to fee
awards in class actions. It may also be an anachronistic artifact of earlier versions of the bill,
given that the December 1, 2003, amendments to Rule 23 enacted many of the “best practices”
this section invokes.


420021.1                                             36
       SubSsction (b)(2)(A) provides a strong impetus to lodestar cross-checks in fee awards
based on a percentage of a common fund.

§ 8.01 Rulemaking Authority of the Supreme Court and the Judicial Conference

           [1]    Text

           This provision states:

           SEC. 8. RULEMAKING AUTHORITY OF SUPREME COURT AND JUDICIAL
           CONFERENCE.

                  Nothing in this Act shall restrict in any way the authority of the Judicial
           Conference and the Supreme Court to propose and prescribe general rules of practice and
           procedure under chapter 131 of title 28, United States Code.

           [2]    Comments

        Earlier versions of the bill included requirements for the content and clarity of class
notices, subjects on which Federal Rule of Civil Procedure 23 has recently been amended.
Those provisions have now been dropped, and the statute does not now contain any provisions in
conflict with Rule 23.

§ 9.01 Everything You Know About CAFA May Be Wrong: Provisions of Earlier Versions
of Bill That Disappeared from CAFA

        Earlier, unenacted versions of the CAFA bill included a provision against “bounty
payments” to class representatives, barring even modest incentive payments and requiring that
they be compensated on the same basis as other class members, with an exception for their
reasonable time and costs. The elimination of this provision supports the award of reasonable
incentives.

        Earlier versions of the bill also included “plain English” requirements for class notices,
interfering with new Federal Rule of Civil Procedure 23(c)(2)(B), which went into effect on
December 1, 2003. There is now no conflict with the rule.

        Earlier versions of the bill would have allowed any nonparty class member to remove the
case to federal court. This provision is not in CAFA.

       Earlier versions of the bill included a “merry-go-round” provision that would have
required the federal court to dismiss a removed case if the court denied class certification, would
have started the period of limitations running again before the plaintiffs received notice of the
dismissal, and allowed refiling of an amended complaint in state court and a subsequent removal,
without any end other than the incremental expiration of the statute of limitations while notices
of dismissal are in the mail.

      H.R. 1115 included a provision that is not in CAFA, which would have created an
automatic right of appeal from orders granting or denying class certification, and would have


420021.1                                         37
required an automatic stay of proceedings during the pendency of appeal. Because Federal Rule
of Civil Procedure 23(f) already allows appeals where the court of appeals determines that they
may have potential merit and there is an adequate reason to review the matter immediately, this
provision would have allowed frivolous appeals to result in an automatic freeze of the underlying
action and created an opportunity for the hiding of assets. These provisions were not included in
CAFA.

        H.R. 1115 included a provision applying the CAFA bill to any state-court class action, no
matter when filed, if the state court had not yet ruled on class certification. This provision is not
in the enacted statute. As discussed in § 2.01, CAFA is not retroactive.

§ 10.01           Issues Regarding Judicial Caseloads

         An analysis by Public Citizen of state and federal data28 show that there are 1,498
California trial judges whose most time-consuming work (class actions) will be shifted to the 62
federal trial judges in California. Nationally, the time-consuming class action work of 9,200
state trial judges will be shifted to the 678 federal trial judges.

        This comes at a time when Congress has deprived the federal courts of the resources
needed simply to maintain their previous levels of activity. Chief Justice Rehnquist stated in his
State of the Judiciary Report, released January 1, 2005, at p. 2:

           The continuing uncertainties and delays in the funding process, along with rising fixed
           costs that outpace any increased funding from Congress, have required many courts to
           impose hiring freezes, furloughs, and reductions in force. In some cases they have had to
           cut back services available to the public. During Fiscal Year 2004, this resulted in a 6
           percent reduction—1,350 positions—in employees other than judges and the staff who
           work in their chambers. The area of probation and pretrial services was particularly hard
           hit.

         Practitioners can expect significant delays as federal courts attempt to cope with the flood
of new business they will have. The delays may affect not just class actions, but all federal civil
litigation, including cases that can be heard only in federal court: patent, trademark, copyright,
ERISA, and Social Security litigation, among others.

         Nothing in the statute bars a federal court from asking a state judge to serve as a special
master pursuant to Federal Rule of Civil Procedure 53, overseeing everything but the trial of the
litigation. This creative approach to federal/state coordination may ease judicial hardships.




           28
           National Center for State Courts, State Court Caseload Statistics 2003, State Court Structure Charts.
2003 Judicial Business, Annual Report of the Director of the Administrative Office of the U.S. Courts, Table X-1A.



420021.1                                               38
§ 11.01          CAFA Raises Constitutional Questions

           [1] General Constitutional Concerns

        The discussion in § 5.01[2][b], mentions Article III concerns of taking into account the
diversity of nonparty class members, and the discussion in § 5.01[3][b], mentions Fifth
Amendment due-process concerns in any continued indulgence of presumptions against
expansions of liability under state law when state law is unclear, or against the certification of
multistate state-law classes. A discretionary denial of class certification by a federal court is one
thing if there is another set of state-court systems of justice disposing of the vast bulk of cases,
but can violate due process if it is the only avenue of relief. Practitioners and the courts must
adjust quickly to this new reality.

           [2] Tenth Amendment/Federalism Concerns

         CAFA’s provisions raise significant Tenth Amendment issues. CAFA allows the transfer
of massive numbers of cases—the largest and most important state-law cases—to the federal
courts. There is no federal common law of tort or contract. There is no federal consumer fraud
statute. The legal issues raised by the vast majority of class actions that will be removed to the
federal courts under CAFA are matters of state substantive law. Because definitive constructions
of state laws tend to occur in large cases in which the stakes justify their litigation, and because
not all states have laws or rules allowing certified questions to be sent them by the federal courts,
state courts are deprived by CAFA of their principal opportunities to construe their own laws.

        The purpose of the Tenth Amendment to the Constitution is the preservation of core state
functions. The Amendment states: “The powers not delegated to the United States by the
Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the
people.” The Supreme Court has stated: “The Amendment expressly declares the constitutional
policy that Congress may not exercise power in a fashion that impairs the States’ integrity or
their ability to function effectively in a federal system.” Fry v. United States (1975) 421 U.S.
542, 547 n.7, 95 S. Ct. 1792, 44 L. Ed. 2d 363 (upholding application of general wage and salary
controls to state government employees). Printz v. United States (1997) 521 U.S. 898, 117 S. Ct.
2365, 138 L. Ed. 2d 914 held unconstitutional a statute that required state and local officials to
enforce federal restrictions on gun ownership, holding that “the Federal Government may not
compel the States to implement, by legislation or executive action, federal regulatory programs.”
Printz v. United States (1997) 521 U.S. 898, 925, 117 S. Ct. 2365, 138 L. Ed. 2d 914.

        Speaking of the United States’ system of dual sovereignty, the Court in Prinz stated:
“The great innovation of this design was that ‘our citizens would have two political capacities,
one state and one federal, each protected from incursion by the other’—‘a legal system
unprecedented in form and design, establishing two orders of government, each with its own
direct relationship, its own privity, its own set of mutual rights and obligations to the people who
sustain it and are governed by it.’” Printz v. United States (1997) 521 U.S. 898, 925, 117 S. Ct.
2365, 138 L. Ed. 2d 914. In New York v. United States (1992) 505 U.S. 144, 156<n>157, 112 S.
Ct. 2408, 120 L. Ed. 2d 120, the Court held that the key question involves Congressional
infringement on “an incident of state sovereignty”:




420021.1                                         39
           The Tenth Amendment likewise restrains the power of Congress, but this limit is not
           derived from the text of the Tenth Amendment itself, which, as we have discussed, is
           essentially a tautology. Instead, the Tenth Amendment confirms that the power of the
           Federal Government is subject to limits that may, in a given instance, reserve power to
           the States. The Tenth Amendment thus directs us to determine, as in this case, whether an
           incident of state sovereignty is protected by a limitation on an Article I power.

In New York, the Court struck down under the Tenth Amendment a statute that requires states to
take title to low-level radioactive waste that they have not regulated. Alden v. Maine (1999) 527
U.S. 706, 119 S. Ct. 2240, 144 L. Ed. 2d 636 held that the Tenth Amendment barred Congress
from requiring that atates be subject to suit in their own courts for violation of the federal Fair
Labor Standards Act. The Court stated at 714:

           The federal system established by our Constitution preserves the sovereign status of the
           States in two ways. First, it reserves to them a substantial portion of the Nation's primary
           sovereignty, together with the dignity and essential attributes inhering in that status. The
           States “form distinct and independent portions of the supremacy, no more subject, within
           their respective spheres, to the general authority than the general authority is subject to
           them, within its own sphere.” THE FEDERALIST NO. 39, p. 245 (C. Rossiter ed. 1961) (J.
           Madison).

           Second, even as to matters within the competence of the National Government, the
           constitutional design secures the founding generation's rejection of “the concept of a
           central government that would act upon and through the States” in favor of “a system in
           which the State and Federal Governments would exercise concurrent authority over the
           people—who were, in Hamilton's words, ‘the only proper objects of government.’”

Finally, United States v. Lopez (1995) 514 U.S. 549, 115 S. Ct. 1624, 131 L. Ed. 2d 626 struck
down a federal statute barring the possession of handguns in a school zone as not authorized by
the Commerce Clause. Justice Kennedy, joined by Justice O’Connor—the ideological center of
the Court—concurred, stating that education was a traditional function of the states, and that the
justices also saw the prohibition as violating the Tenth Amendment. States v. Lopez (1995) 514
U.S. 549, 580<n>581, 583, 115 S. Ct. 1624, 131 L. Ed. 2d 626.

           [3] Minority Reaction to Tenth Amendment Issues

        Opponents of CAFA called attention to these problems. The minority report on S. 274
stated at 77<n>78:

           Even more troublesome than these potential workload problems, S. 274 raises serious
           constitutional issues by challenging the vision of our founders and the intent of the
           Constitution. This legislation undermines James Madison’s vision of a Federal
           government “limited to certain enumerated objects, which concern all the members of the
           republic.”19 This bill does not merely operate to preempt state laws; rather, it unilaterally
           strips the state courts of their ability to use the class action procedural device to resolve
           state law disputes. As the Lawyers’ Committee for Civil Rights Under Law observes,
           citing Bank of the United States v. Deveaux:


420021.1                                            40
                  For over 200 years, Federal diversity jurisdiction has been exercised with care and
                  hesitation, demonstrating that Congress believed, with few exceptions “tribunals
                  of the state * * * administer justice as impartially as those of the nation, to parties
                  of every description.”20

           The courts have previously found that efforts by Congress to dictate such state court
           procedures implicate important Tenth Amendment Federalism concerns and should be
           avoided. For example, in Fielder v. Casey21 the Supreme Court observed that it is an
           “unassailable proposition * * * that States may establish the rules of procedure governing
           litigation in their own courts.” Similarly, in Johnson v. Fankell22 the Court reiterated
           what it termed “the general rule ‘bottomed deeply in belief in the importance of State
           control of State judicial procedure * * * that Federal law takes State courts as it finds
           them’&thinsp;”23 and observed that judicial respect for the principal of Federalism “is at
           its apex when we confront a claim that Federal law requires a State to undertake
           something as fundamental as restructuring the operation of its courts” and “it is a matter
           for each State to decide how to structure its judicial system.”24

           These same constitutional concerns were highlighted by Professor Laurence Tribe in his
           testimony regarding the constitutionality of a proposed Federal class action rule
           applicable to state courts included in tobacco legislation proposed during the 105th
           Congress. Professor Tribe observed: “[f]or Congress directly to regulate the procedures
           used by state courts in adjudicating state-law tort claims—to forbid them, for example,
           from applying their generally applicable class action procedures in cases involving
           tobacco suits—would raise serious questions under the Tenth Amendment and principles
           of Federalism.”25

           The Supreme Court’s most recent decisions further indicate that S. 274 is an unacceptable
           infringement upon state sovereignty. In United States v. Morrison,26 the Court
           invalidated parts of the Violence Against Women Act, claiming that Congress
           overstepped its specific constitutional power to regulate interstate commerce. Despite
           vast quantities of data illustrating the effects that violence against women has on
           interstate commerce, the Court essentially warned Congress not to extend its
           constitutional authority to “completely obliterate the Constitution’s distinction between
           national and local authority.” S. 274, introduced without a hearing and without any
           convincing data, ignores the Court’s admonitions and subverts the Federal system by
           hindering the states’ ability to adjudicate class actions involving important and evolving
           questions of state law. S. 274 not only obliterates the distinction between national and
           local authority, it effectively annihilates local authority over state class actions.
           __________
                   19
                      Federalist No. 14.
                   20
                      See April 9, 2003, letter from Lawyers’ Committee for Civil Rights Under Law,
           quoting Bank of the United States v. Deveaux, 5 Cranch 61, 87 (U.S. 1809); see also City
           of Indianapolis v. Chase Nat’l Bank, 314 U.S. 63, 76 (1941).
                   21
                      487 U.S. 131, 138 (1988) (finding Wisconsin notice-of-claim statute to be
           preempted by 42 U.S.C. § 1983, which holds anyone acting under color of law liable for
           violating constitutional rights of others).



420021.1                                            41
                  22
                        520 U.S. 911 (1997) (holding that Idaho procedural rules concerning
           appealability of orders are not preempted by 42 U.S.C. § 1983).
                   23
                       Id. at 919 (quoting Henry M. Hart, Jr., The Relations Between State and
           Federal Law, 54 Colum. L. Rev. 489, 508 (1954).
                   24
                      Id. at 922. See also Howlett v. Rose, 296 U.S. 356, 372 (1990) (quoting Henry
           M. Hart, Jr., The Relations Between State and Federal Law, 54 Colum. L. Rev 489, 508
           (1954) for the proposition that Federal law should not alter the operation of the state
           courts); New York v. United States, 505 U.S. 144, 161 (1992) (stating that a law may be
           struck down on Federalism grounds if it “commandeer[s] the legislative processes of the
           States by directly compelling them to enact and enforce a Federal regulatory program”).
                   25
                      The Global Tobacco Settlement: Hearings Before the Senate Comm. on the
           Judiciary, 105th Cong., (1997) (statement of Laurence H. Tribe, Tyler Professor of Law,
           Harvard Law School). Indeed, Chairman Hatch recently praised Professor Tribe at the
           Committee’s June 4, 2003, hearing on asbestos litigation as “known here and throughout
           the country as one of the most respected constitutional scholars and practitioners.”

        It will take many years of litigation to resolve the constitutional, substantive, procedural,
and practical questions posed by CAFA. Our state courts will be called to opine upon these
issues as well. CAFA leaves significant room for federal courts to defer, via remand, to state
courts in cases where a plurality of the class members reside within a state’s borders. In the case
of populous states such as California, New York, Florida, Pennsylvania, Illinois, Ohio, and
others with highly developed tort and commercial common law jurisprudence, this means that
state courts will continue to preside over, or inject substantive direction into, many class actions,
albeit in an as yet undefined and therefore uneasy partnership with the federal district courts and
Ninth Circuit. We will report on the dynamics of this relationship as it unfolds.




420021.1                                          42

				
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