This week the U.S. Supreme Court unanimously held in Mississippi ex rel. Hood v. AU Optronics Corp. that parens patriae actions in which the State is the sole plaintiff are not “mass actions” under the Class Action Fairness Act of 2005 (CAFA or the Act). The ruling means that such parens patriae suits are not removable to federal court under CAFA’s mass action provisions. Remaining in state court presents an additional challenge to defending parens patriae actions, which often carry exposure commensurate with class actions but which lack the procedural protections of CAFA and Rule 23. Many industries may now face increased litigation exposure. Click here for the opinion.
The decision resolves a split of authority in the U.S. Courts of Appeals about whether unnamed persons who are real parties in interest to named plaintiffs’ claims can be counted in order to satisfy the “100 or more persons” requirement for a CAFA mass action. Focusing on fundamental principles of statutory interpretation, the Court concluded that only named plaintiffs count toward the numerosity requirement.
AU Optronics is a parens patriae action filed in state court by the Mississippi Attorney General against manufacturers of liquid crystal displays (LCDs) for alleged price fixing in violation of state law. The State sought multiple forms of relief including restitution for the State’s purchases of LCD products and for the purchases made by the State’s citizens. The complaint was strikingly similar to earlier class action complaints consolidated in a federal court multidistrict litigation, and the Mississippi Attorney General hired the same plaintiffs’ class counsel to litigate the copycat parens patriae action.
The LCD manufacturers removed the case to federal court under CAFA’s mass action provisions. The federal district court, finding that the State of Mississippi’s suit was not a class action, proceeded to analyze whether the suit was a mass action. CAFA defines a mass action to mean “any civil action … 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.”
Relying on U.S. Court of Appeals for the Fifth Circuit precedent, Louisiana ex rel. Caldwell v. Allstate Insurance Co., 536 F.3d 418 (5th Cir. 2008), the district court opined that the case was a mass action because 100 or more unidentified Mississippi consumers had purchased LCD screens and accordingly were real parties in interest to the State’s restitution claims. The district court, however, remanded the case after finding that all of the claims were being “asserted on behalf of the general public (and not on behalf of individual claimants or members of a purported class),” and so CAFA’s “general public exception” applied.
On appeal, the Fifth Circuit agreed that the suit met CAFA’s numerosity requirement because there were more than 100 real parties in interest—individual purchasers of LCD products—even though the State was the only named plaintiff. The Fifth Circuit disagreed, however, with the district court’s conclusion that the suit fell within the “general public exception,” because not all of the claims were being asserted on behalf of the general public. Accordingly, the Fifth Circuit held that the case was removable to federal court. In a concurring opinion, one of the circuit judges noted that the Fourth, Seventh, and Ninth Circuits had found similar lawsuits not removable, contrary to the Fifth Circuit’s earlier decision in Allstate.
The U.S. Supreme Court granted certiorari to resolve the circuit split and reversed the Fifth Circuit. Writing for a unanimous Court, Justice Sonia Sotomayor explained that Congress did not intend for the word “persons” to refer to “unnamed real persons in interest” in the mass action context. The Court reasoned that the express omission of “unnamed persons” in the mass action provision was intentional, given that other parts of the Act explicitly use the term “named or unnamed persons.” For example, in CAFA’s requirements for a “class action” to be removable, Congress specified that “named or unnamed” persons would be counted. The mass action provision, by contrast, does not refer to “named or unnamed” persons.
The Court also explained that Congress’ use of the phrase “100 or more persons” directly refers to the same individuals characterized as the “plaintiffs” later in the mass action provision. The Court further reasoned that the term “plaintiffs” cannot have different meanings within the same statute, and applying the defendants’ proffered interpretation throughout would be unworkable. This is because CAFA only extends mass action jurisdiction to “plaintiffs” whose individual claims each exceed $75,000. To interpret “plaintiffs” to mean “unnamed individuals” would cause an administrative nightmare, wrote the Court, because courts would be forced to identify the unnamed persons whose claims were worth less than $75,000, perhaps via an evidentiary hearing involving hundreds of thousands of claimants. Even if a court were to undertake such an “unwieldy inquiry,” it would then have to remand to state court the claimants who fell below the jurisdictional threshold, resulting in parallel state and federal litigation.
The entire CAFA statutory context also reinforced the Court’s interpretation. First, CAFA’s provision governing transfer motions requires that a “majority of the plaintiffs” must agree on a transfer once a mass action has been removed to federal court. If that definition included “unnamed individuals,” determining a “majority of the plaintiffs” would not be possible. Likewise, Congress’ primary concerns when enacting CAFA were class actions, with the mass action provisions merely a “backstop.” The Court reasoned that if Congress wanted representative actions brought by States to be removable, then the class action provisions would have provided that option.
This ruling will likely be seen as a setback for proponents of class action reform, for whom CAFA took a significant step toward centralizing large class actions in federal court, and who cheered recent Supreme Court decisions that imposed more rigorous requirements for class certification and enforced arbitration provisions, including class action waivers. Parens patriae actions present unique challenges for target defendants. Unlike traditional class actions under Rule 23 and state law corollaries, parens patriae actions do not afford courts the gatekeeping role found in the certification test; instead, parens patriae actions often proceed directly to the merits. Whereas a traditional class or mass action might be limited by arbitration clauses, a parens patriae action may face no such impediment even where the beneficiaries of the relief sought are, in fact, parties to binding arbitration agreements. This ruling likely means that more of these high-exposure cases will have to be defended in state courts, without the protections of CAFA, Rule 23, and recent Supreme Court precedent reining in certain class action practices.