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Civil Justice Report
No. 3  September 2001


They’re Making a Federal Case Out of It . . . In State Court

John H. Beisner and Jessica Davidson Miller

The Harvard Journal of Law and Public Policy will publish “They’re Making a Federal Case Out of It…In State Court” in the first issue of its 2001/2002 season.  This paper may not be published in any journals, magazines, newspapers, or other periodicals or electronic data retrieval services without the permission of the Harvard Journal of Law and Public Policy and the Manhattan Institute.

Increasingly, academics and policy makers are concerned that a handful of state courts, through their certification and settlement of interstate class action lawsuits, are effectively making law for 49 other states in addition to their own, or applying their own state law to citizens of other states.  Interstate class actions, often brought by a relatively small number of very skilled plaintiff's firms, can dictate regulatory policy for national industries and affect the rights of millions of consumers. This study examined class actions from 1998-2000 in 3 counties (Palm Beach County, Fl; Jefferson County, Tx; Madison County, Il) to discern whether the problems being discussed are an anomaly or a genuine threat that warrants congressional action.

In the last Congress, both houses carefully examined a key judicial policy question—should interstate class actions (that is, large-scale lawsuits with significant interstate commerce implications involving the residents and laws of multiple states) normally be heard by local county courts (that is, by judges typically elected by the residents of the court’s locality) or by federal courts (that is, by judges nominated by the President of the United States and confirmed by the duly elected Senators of all 50 states)? These discussions were prompted by introduction of legislation intended to widen the scope of federal diversity jurisdiction over interstate class actions.2 After several detailed hearings,3 that legislation passed the House.4 Senate hearings were also held on the subject,5 and the Senate Judiciary Committee ultimately endorsed enactment of a bill parallel to that passed by the House.6 However, the full Senate never considered the measure, and the jurisdiction expansion proposals did not become law. The legislation has been reintroduced in the current session of Congress.7

I. THE IMPETUS FOR EXPANDING FEDERAL JURISDICTION OVER INTERSTATE CLASS ACTIONS.

The prospect of expanding federal jurisdiction over class actions has taken center stage because of an anomaly in current law that normally causes interstate class actions filed in state courts to remain there, notwithstanding their inherently federal character. In structuring our judicial system, the Framers established that federal courts would hear cases presenting federal law issues (that is, lawsuits asserting constitutional or federal statutory claims, or involving the federal government as a party), while leaving to state courts the task of adjudicating local questions arising under state laws. However, the Framers did not stop their line drawing there. In Article III of the U.S. Constitution, they authorized the extension of federal jurisdiction to one category of cases arising under state law: so-called “diversity” cases, defined as suits “between Citizens of different States.” In enacting the Judiciary Act of 1789,8 Congress exercised that authority, specifically empowering federal courts to hear diversity cases that met certain criteria. Such cases are thus firmly entrenched in the federal jurisdictional landscape.

The Framers established the concept of federal diversity jurisdiction out of concern that local biases would render state courts ineffective in adjudicating disputes between in-state plaintiffs and out-of-state defendants.9 In short, they feared that non-local defendants might be “hometowned.” Diversity jurisdiction was designed not only to diminish this risk, but also “to shore up confidence in the judicial system by preventing even the appearance of discrimination in favor of local residents.”10 The Framers reasoned that some state courts might discriminate against interstate commerce activity and out-of-state businesses engaged in such activity and that federal courts therefore should be allowed to hear diversity cases so as to ensure the availability of a fair, uniform and efficient forum for adjudicating interstate commercial disputes.11 Thus, since the nation’s inception, diversity jurisdiction has served to guarantee that parties of different state citizenship have a means of resolving their legal differences on a level playing field in a manner that nurtures interstate commerce. Constitutional scholars have argued that “[n]o power exercised under the Constitution . . . had greater influence in welding these United States into a single nation [than diversity jurisdiction]; nothing has done more to foster interstate commerce and communication and the uninterrupted flow of capital for investment into various parts of the Union, and nothing has been so potent in sustaining the public credit and the sanctity of private contracts.”12

In enacting the diversity jurisdiction statute, Congress did not exercise the full authority granted under Article III for diversity jurisdiction. Under 28 U.S.C. § 1332, an action is subject to federal diversity jurisdiction only where the parties are “completely” diverse (that is, where no plaintiff is a citizen of the same state where any defendant is deemed to be a citizen) and where each plaintiff asserts claims that put in controversy an amount in excess of a specified threshold—currently set at $75,000. In short, section 1332 essentially allows federal courts to hear cases that are large (that is, cases with large “amounts in controversy”) and that have interstate implications (that is, cases involving citizens from multiple jurisdictions).

Class actions would usually be expected to meet these criteria because they (a) place substantial amounts into controversy (insofar as they encompass many people with many claims) and (b) involve parties from multiple jurisdictions. Yet, because section 1332 was originally enacted before modern day class actions existed and therefore does not take account of the unique circumstances that such cases present, section 1332 tends to exclude class actions from federal courts, while welcoming much smaller single-plaintiff cases having few (if any) interstate ramifications.

Section 1332 has two exclusionary dimensions. First, as noted above, it has been interpreted to require “complete” diversity, so that diversity jurisdiction is lacking whenever any single plaintiff is a citizen of the same state as any single defendant.13 Wisely, the federal courts have determined that in class actions, this complete diversity inquiry should be made only regarding the parties actually named in the actions; the citizenship of unnamed class members is disregarded.14 If not interpreted in this manner, section 1332 would effectively bar all non-federal question class actions from federal court. This is because it is normally impossible to prove the citizenship of all unnamed class members at the outset of a case, given that their identities are generally unknown at that juncture. Still, this commonsense interpretation of section 1332 poses a problem, since a plaintiff can readily avoid federal jurisdiction by simply including a non-diverse named plaintiff or defendant in his or her complaint.

Second, an even greater impediment is posed by the manner in which the jurisdictional amount requirement is applied in class actions. While for complete diversity purposes, a court looks only at the named parties, the jurisdictional amount requirement has been interpreted as applying to both the named plaintiffs and all unnamed class members. Thus, courts have held that a class action satisfies the jurisdictional amount requirement only if it can be shown that each and every member of the proposed class has separate and distinct claims exceeding $75,000.15 Although some federal courts have questioned the breadth and current vitality of this rule,16 this difficult-to-satisfy prerequisite still bars most interstate class actions from federal court. Indeed, in many class actions, plaintiffs seek to avoid federal court by making affirmative allegations that their proposed class action does not satisfy the diversity jurisdictional amount prerequisite.

As the Senate Judiciary Committee concluded last year, the combination of these factors leads to the nonsensical result under which a citizen can bring a “federal case” by claiming $75,001 in damages for a simply slip-and-fall case against a party from another State, while a class of 25 million people living in all 50 States and alleging claims against a manufacturer that are collectively worth $15 billion must usually be heard in State court (because each individual class member’s claim is for less than $75,000). Put another way, under the current jurisdictional rules, Federal courts can assert diversity jurisdiction over a run-of-the-mill State law-based tort claim arising out of an auto accident between a driver from one State and a driver from another, or a typical trespass claim involving a trespasser from one State and a property owner from another, but they cannot assert jurisdiction over claims encompassing large-scale, interstate class actions involving thousands of [claimants] from multiple States, and hundreds of millions of dollars—cases that have significant implications for the national economy.17

Emerging from the discussion of this subject is a growing recognition that this jurisdictional anomaly should be corrected:

  • The leading treatise on federal civil procedure has declared that current principles governing federal diversity jurisdiction over class actions make no sense: “The traditional principles in this area have evolved haphazardly and with little reasoning. They serve no apparent policy . . . .”18
  • In a 1999 decision, the U.S. Court of Appeals for the Eleventh Circuit “apologi[zed]” for its “seemingly arbitrary” and “anomal[ous]” ruling sending a large interstate class action back to state court, noting that “an important historical justification for diversity jurisdiction is the reassurance of fairness and competence that a federal court can supply to an out-of-state defendant facing suit in state court.”19 Observing that the out-of-state defendant in that case was confronting “a state court system [prone to] produce[] gigantic awards against out-of-state corporate defendants,” the court stated that “[o]ne would think that this case is exactly what those who espouse the historical justification for section 1332 would have had in mind.”20
  • In that same case, Judge John Nangle, for many years the chair of the federal Judicial Panel on Multidistrict Litigation, concurred: “Plaintiffs’ attorneys are increasingly filing nationwide class actions in various state courts, carefully crafting language . . . to avoid . . . the federal courts. Existing federal precedent . . . [permits] this practice . . . , although most of these cases . . . will be disposed of through “coupon” or “paper” settlements. . . . virtually always accompanied by munificent grants of or requests for attorneys’ fees for class counsel. . . . [T]he present [jurisdictional] case law does not … accommodate the reality of modern class action litigation and settlements.”21
  • Similarly, in an opinion by Judge Anthony Scirica (chairman of the federal Judicial Conference’s Standing Committee on Rules and Procedure), the U.S. Court of Appeals for the Third Circuit observed that “national (interstate) class actions are the paradigm for federal diversity jurisdiction because, in a constitutional sense, they implicate interstate commerce, foreclose discrimination by a local state, and tend to guard against any bias against interstate enterprises,” but that “at least under the current jurisdictional statutes, such class actions may be beyond the reach of the federal courts.”22

The solution proposed by some legislators is a simple one: to amend the diversity jurisdiction statute to allow more interstate class actions to be heard in federal court. As former Solicitor General Walter Dellinger testified before the House Judiciary Committee, if Congress were to start over and write a new federal diversity jurisdiction statute, interstate class actions would be the first category of cases to be included within the scope of the statute.23

The reasons are obvious. In the first place, because these cases clearly have significant interstate commerce ramifications, federal supervision and management of such cases is desirable. As Chief Justice Marshall recognized, the Commerce Clause reflects the substantial federal interest in regulating “that commerce which concerns more States than one” (as opposed to “the exclusively internal commerce of a State”).24 Clearly, that federal interest is implicated by interstate class actions, which typically involve more money, more people in more states, and more interstate commerce ramifications than any other type of lawsuit.

Second, the rationales underlying the constitutionally established concept of diversity jurisdiction apply fully to interstate class actions. Such cases typically involve in-state plaintiffs suing out-of-state defendants, thereby raising the specter of local court biases against the out-of-state defendant.

Third, federal courts are better equipped to deal with the substantial burdens of presiding over the sprawling, complex proceedings that are often triggered by the filing of an interstate class action. While our federal courts are facing substantial burdens, state courts are as well. The civil caseload in state courts has grown much more rapidly than the federal court civil caseload.25 Federal courts have more resources to meet this challenge.26 Virtually all federal court judges have two or three law clerks on staff; state court judges typically have none.27 Federal court judges are usually able to delegate some aspects of their class action cases (e.g., discovery issues) to magistrate judges or special masters; such personnel are usually not available to state court judges. And federal courts are authorized to transfer and consolidate similar class actions from various states before a single judge in the interest of efficiency;28 state courts lack such consolidation authority and therefore must engage in the wasteful exercise of separately handling such overlapping cases.

Fourth, federal courts have significant institutional advantages over state courts in adjudicating interstate class actions. For example, in recent months, the federal judiciary has been examining the problem of “copy cat” class actions—the strategy under which plaintiffs’ counsel file the same class action before multiple state courts, attempting to convince each state court to certify the matter for class treatment until one finally agrees.29 As was noted in recent discussions before the federal Judicial Conference’s Advisory Committee on Civil Rules, strategic maneuvering by plaintiffs’ attorneys often results in a proliferation of duplicative class action litigation in different jurisdictions. “As a result of competition among class action attorneys, defendants may find themselves litigating in multiple jurisdictions and venues concurrently, which drives transaction costs upward.” [In addition,] . . . “[t]he availability of multiple fora dilutes judicial control over class action certification and settlement, as attorneys and parties who are unhappy with the outcome in one jurisdiction move on to seek more favorable outcomes in another.”30

Indeed, the congressional record reflects cases in which counsel have effectively asked state courts to overrule the denial of class certification by federal courts.31 This strategy, which takes forum shopping to the extreme, is generally unavailable to the extent that class actions are pending in the federal courts because, as noted previously, “competing federal court class actions can be consolidated for pretrial purposes by the Judicial Panel on Multidistrict Litigation.”32

Fifth, federalism principles dictate that interstate class actions be heard by federal courts. The classes in such cases normally encompass residents of many states, often all 50 (plus the District of Columbia). Thus, the trial court—regardless of whether it is a state or federal court—must interpret and apply the laws of multiple jurisdictions. During 1998 hearings on this subject, the House Judiciary Committee heard multiple instances in which state courts handling class actions have ridden roughshod over the laws of other jurisdictions—where one state court has told other state judiciaries what their laws are.33 There is little those other jurisdictions can do to prevent such behavior, since the judgment of a court in one state is generally not reviewable by other states’ courts.34 It is far more appropriate for a federal court to interpret the laws of various states (a task inherent in the constitutional concept of diversity jurisdiction). What business does a state court judge elected by the several thousand residents of a small county in Alabama have in telling the state of Massachusetts what its laws mean? Why should an Alabama state court judge be rendering interpretations of Massachusetts law that are binding on Massachusetts residents and that cannot be appealed to or reviewed by Massachusetts courts? Such matters of interstate comity are more appropriately handled by federal judges appointed by the President and confirmed by the Senate. Further, federal courts have the authority (which they frequently exercise35 ) to use “certified questions” to ask state courts to advise how their laws should be applied in uncharted situations.

Finally, some state courts have been less than proficient in handling interstate class actions. In particular, some have shown a tendency to approve settlements that generously compensate the class counsel while giving little or nothing to the people on whose behalf the action supposedly was brought—the unnamed class members.36 A recent Institute for Civil Justice/RAND study indicates that in state court consumer class action settlements (i.e., non-personal injury monetary relief cases), class counsel sometimes walk off with more money than all of the class members combined.37 In contrast, a contemporaneous Federal Judicial Center study found that “[i]n most [class actions handled by federal courts], net monetary distributions to the class exceeded attorneys’ fees by substantial margins.”38 In this same vein, the Senate Judiciary Committee last year issued a report documenting numerous problems that it identified with the adjudication of interstate class actions in state courts—including the failure to carefully apply class certification requirements (some of which have due process underpinnings), the use of the class device as “judicial blackmail” (giving class counsel leverage to obtain unwarranted settlements), and denials of defendants’ due process rights (denying the opportunity to contest plaintiffs’ claims).39

Based on all of these concerns, the ICJ/RAND study ultimately articulates three reasons why federal courts arguably are the preferred tribunals for handling interstate class actions:

  • “[F]ederal judges scrutinize class action allegations more strictly than state judges, and deny certification in situations where a state judge might grant it improperly.”
  • “[S]tate judges may not have adequate resources to oversee and manage class actions with a national scope.”
  • “[I]f a single judge is to be charged with deciding what law will apply in a multistate class action, it is more appropriate that this take place in federal court than in a state court.”40

Over the past three years, both the House and the Senate have debated whether to amend the federal diversity jurisdictional statute to fix the anomaly outlined above—to allow more interstate class actions to be heard in federal court. The proponents for change have urged that every day, state judges elected by (and therefore accountable only to) the relatively small number of voters in their own county or judicial district are regularly hearing interstate class actions—cases involving thousands (and sometimes millions) of persons from many states presenting issues involving the laws of many jurisdictions and presenting widespread interstate commerce implications. Further, they have argued that since interstate class actions uniquely qualify as “universal venue” cases, they often can be filed in virtually any federal or state court in the country, creating maximum forum shopping opportunities.41 As a result, class action lawyers are bringing a large number of cases in a small number of state courts that have become “magnets” for interstate class actions, and are thus exercising a wildly disproportionate role in adjudicating national disputes. The proponents have argued that state courts should not be playing this role—that such matters should be entrusted to federal judges, who are nominated by the President of the United States and confirmed by U.S. Senators representing all 50 states.42

Opposing voices have not contended that Congress lacks authority to modify the complete diversity or jurisdictional amount prerequisites for diversity jurisdiction, as applied to interstate class actions.43 And relatively few have urged that expanding federal jurisdiction over interstate class actions would be bad policy. Instead, the primary argument offered against modifying the diversity jurisdiction rules for interstate class actions has been that the empirical case for taking such action has not been made—that there is insufficient evidence that state courts are playing an inappropriate, disproportionate role in the adjudication of interstate class actions.44 Some opponents urge that before the federal diversity jurisdiction statute can be amended, it must be demonstrated that the current jurisdictional divides are producing more than just anecdotes—there must be proof that there exists a systemic problem.

II. THE EMPIRICAL CASE FOR EXPANDING FEDERAL JURISDICTION OVER INTERSTATE CLASS ACTIONS.

A. The Current Congressional Record.

The congressional record on this subject already spotlights a systemic problem. In particular, it contains substantial evidence that the frequency with which state courts are being called upon to hear interstate class actions has grown exponentially in recent years. In 1999, the House Judiciary Committee noted that there had been “dramatic increases in the number of purported class actions being filed in State courts, according to data supplied to the Committee.”45 In that same time frame, a preliminary report on a major empirical research project by RAND’s Institute for Civil Justice (“ICJ”) observed that over a several year period, there had been a “doubling or tripling of the number of putative class actions” that was “concentrated in the state courts.”46 Yet another survey indicated that while federal court class actions had increased by 340 percent over the past decade, state court class action filings had increased 1,315 percent.47 Typically, the new state court filings were on behalf of proposed nationwide or multi-state classes.48

The congressional record further indicates that this new wave of class actions was not evenly distributed among state courts nationwide. For example, one study submitted to the House Judiciary Committee in 1999 indicated that in the courts of six small, rural Alabama counties, at least 91 class actions were filed over a two-year period, often seeking relief on behalf of purported nationwide classes concerning matters of national significance.49 And based on a review of various case filings data, the final report on the RAND/ICJ study on class actions concluded that class actions “were more prevalent” in certain states “than one would expect on the basis of population.”50

B. The 2001 County Court Data Collection Effort.

Even though the congressional record already reflects considerable empirical evidence of the disproportionate involvement of state courts in interstate class action litigation, the Manhattan Institute commenced further research on this subject earlier this year, producing a substantial quantum of fresh data about state court class actions.

That research was prompted by the fact that although the Administrative Office of the U.S. Courts tracks the numbers and subject matters of purported class actions that are filed in federal courts and annually publishes statistical analysis regarding such cases,51 no institution systematically gathers comparable comprehensive data regarding purported class actions filed in state courts. Obtaining data on state court class actions is made exceedingly difficult by the failure of many state courts to have any sort of computerized tracking system that distinguishes class actions from other sorts of cases. In short, in many state courts, there is no database that can be searched to isolate those cases on the docket that are purported class actions. As a result, there is no means of assembling data on the numbers and subject matters of class actions filed in state courts without physically going to those courts individually and reviewing dockets and other records to derive relevant data.

The Manhattan Institute study sought to identify trends in nationwide class action activity by examining the civil dockets of three county courts and using those courts as a window on what was happening with state court class actions nationwide. In order to assist with the research, the Manhattan Institute enlisted Stateside Associates, a Virginia-based research organization, which previously conducted research on class actions in Alabama.52 As the first step, the researchers conducted an exhaustive literature search, focusing on published decisions, litigation publications and general media reports, to obtain some indication of which counties appeared to have had the most new class actions filed between 1998 and 2000.53 Then, the researchers sought to identify which of those counties had systems, rules, computers and data-keeping practices that might facilitate data collection.

The researchers ultimately elected not to conduct their reviews in the more populous counties identified in the class action literature search—i.e., Los Angeles County, California; Cook County, Illinois; and Dade County, Florida—for several reasons. First, these counties (by virtue of their size) had massive volumes of case filings (more than 45,000 per year in Dade County) and outdated filing systems that would have made it difficult to identify and retrieve class action dockets. Second, the larger metropolitan centers tend to experience higher volumes of more complex litigation of all sorts, limiting the ability to assess the specific impact of class actions in those judicial districts.

In the end, the researchers focused on three county courts—Madison County, Illinois; Jefferson County, Texas; and Palm Beach County, Florida—that had (a) relatively high volumes of class action filings and (b) computer systems that were more likely to enable swift and accurate research and retrieval of class action dockets. The courts of each of these counties (most notably, Madison County, Illinois) have seen a steep rise in class action filings over the last several years that seems disproportional to their populations. Based on the aforementioned literature search, Madison County ranked third nationwide (after Los Angeles County, California and Cook County, Illinois) in the estimated number of class actions filed each year, whereas Jefferson County and Palm Beach County ranked eighth and ninth, respectively.

Once the counties were selected, a group of attorneys and law students went to the clerks’ offices of the selected courts and used available research tools to assemble data. The researchers’ primary objectives were (a) to identify all purported class actions that were filed in each county during the 1998-2000 timeframe,54 (b) to locate and review the dockets of each of those identified class actions, and (c) to harvest from those dockets certain information about each case, particularly the complaint(s), class certification briefing, and status information. The researchers soon found that the computer systems in these county courts were deficient in some respects, and as a result, they ultimately relied on a combination of computer research and manual docket searches to ensure accurate results.

III. THE COUNTY COURT RESEARCH PROJECT: PRIMARY FINDINGS.

The Manhattan Institute research confirmed what the anecdotal analysis had suggested—that the three county courts surveyed have experienced a disproportionately high volume of class action filings, given their respective population and general case docket size. The study also found that the number of class actions—and most particularly, nationwide class actions—filed annually in each county increased substantially between 1998 and 2000. In Madison County, for example, there were only two class actions filed in 1998; last year, 39 class actions were filed there—an increase of 1850 percent. In the first two months of calendar year 2001 alone, 13 new class actions were filed in the Madison County courthouse. At that pace, class action filings will grow by another 92 percent this year.

The table below provides a year-by-year breakdown of the total number of class actions filed in each county:55

Overview Of Research Results

County:

Palm Beach County

Jefferson County

Madison County

Civil Cases Filed (1998-2000)

36,000

10,500

10,368

Class Actions Filed (1998)

29

11

2

Class Actions Filed(1999)

23

15

16

Class Actions Filed (2000)

39

20

39

Class Actions Filed (Early Months 2001)

*

1

13

Total Class Actions Filed (1998-2000)

91

49

70

Class Actions as Percentage of Total Civil Actions Docket (1998-2000)

0.25%

0.47%

0.68%

Percentage Increase in Class Actions (1998 vs. 2000)

34%

82%

1850%

A. The County Courts Experienced Class Action Filing Rates That Were Disproportionate To Their Populations.

In order to understand the significance of the research about the frequency of class action filings (e.g., 91 class actions being filed in Palm Beach County over three years), one must consider these numbers in light of the counties’ demographics and the class action filing patterns in other counties. Because there are no comprehensive published data on the number of class actions filed each year in state courts, this exercise necessarily involves several steps.

First, it is important to note that the three counties surveyed account for only a very small portion of our nation’s population and economic activity. For example, Jefferson and Madison counties—each with a population of about 250,000 (based on 2000 census data)—represent less than one-tenth of one percent of the U.S. population. Even Palm Beach County, which is substantially more populous (with about 1.1 million people), represents less than one-half of one percent of the nation’s population. Economic data for these counties similarly reveals that they are not commercial hubs in which one might expect to find large number of lawsuits filed against locally headquartered enterprises. To the contrary, these counties account for only a miniscule percentage of the gross national product. Jefferson County, which has the largest manufacturing component of any of the counties surveyed, accounts for less than one-half of one percent of manufacturers’ shipments in the United States.56 Nor are these counties major retail centers. Palm Beach, Florida, the most populous of the three counties, accounts for only about one-half of a percent of total U.S. retail sales,57 and Madison County accounts for less than one-tenth of one percent.58

Nevertheless, based on the aforementioned literature research, the local Madison County court has been the situs of more class actions in the last few years than any other county court in the United States (except Los Angeles and Cook counties, which have populations larger than Madison County by a factor of 38 and 21 respectively). And the Manhattan Institute research confirms that the number of filings in these counties is anomalous, though the path to that conclusion is somewhat indirect because of the lack of state court class action filings data.

Perhaps the best way to assess the Manhattan Institute research is to consider the per capita class action filing rates in the three counties surveyed. As set forth in the table below, these rates confirm that the three counties have highly disproportionate numbers of class actions. For example, if class actions were filed throughout the country at the same per capita rates as Jefferson County, there would have been 22,331 class actions filed in state courts in 2000. At the Madison County rate, the total number of class actions would have been 42,386. Despite the lack of published data on the total number of class actions brought each year in state courts, the number probably does not approach 20,000.

A comparison with the federal court system is instructive. Only about 2,000 class actions are filed in the entire federal court system each year.59 That amounts to a per capita rate of about 7.6 class actions for every million residents. In Madison County in 1999, the rate of per capita state court class actions was nearly nine times higher—with about 61 class actions filed per million people. Even the most populous county surveyed (Palm Beach) has a per capita class action filing rate that is three times the rate in federal court. If class actions were being filed in federal court at the same rate as in Madison County, there would be a total of 17,344 class action filings in federal courts each year. If they were filed at the Palm Beach County rate, there would be 5,700 instead of 2,000.

B. Surprisingly Numerous Cases Involved Named Parties Who Reside Outside The County Court’s Vicinity.

A second key finding of the Manhattan Institute research, which is consistent with the discussion above regarding the economic demographics of the counties surveyed, is that a large percentage of the cases involved plaintiffs and/or defendants that were not residents of the counties where the class actions were filed. For example, in Madison County, none of the companies listed as defendants was based inside Madison County, and only 63 percent of the named plaintiffs were county residents. Similarly, in Jefferson County, just 13 of the 173 defendants named in class actions between 1998 and early 2001 were based inside the county, and about 64 percent of the plaintiffs were Jefferson County residents. Even in Palm Beach County, which had the largest number of suits against local companies, about half of the defendants sued were based outside the county. This lack of any real nexus between most of these lawsuits and the forums in which they were brought is one of the most important findings of the Manhattan Institute research and is discussed in more detail in Section IV, below.

Per Capita Class Action Filings In Counties Surveyed/Federal Courts

Court:

Madison County

Jefferson County

Palm Beach County

Entire Federal Court System

Number of Class Actions Filed In 1999

16

15

23

2,133

Per Capita Class Action Filings In 1999 (per million)

61.8

59.5

20.3

7.6

C. The County Courts’ Class Action Dockets Are Monopolized By A Small Cadre Of Out-Of-County Plaintiffs’ Counsel.

In addition to finding an inexplicably large number of class actions in the three surveyed state courts, the research also found that a large number of these cases were brought by small groups of plaintiffs’ counsel who have developed expertise in bringing massive actions against large corporations in a select number of state courts. In Madison County, the same five firms appeared as counsel in approximately 45 percent of the cases on the class action docket. Similarly, in Jefferson County, five firms seem to be driving a large percentage of the local class action industry, cumulatively appearing in 32 percent of the class action lawsuits included in the survey.

Moreover, most of these firms are not located in the counties where they are choosing to sue. In Madison County, the law firms that filed the purported class actions generally were not based in that locale. Of the 66 plaintiffs’ firms that were listed on the Madison County case files, 56 (or 85 percent) listed office addresses outside Madison County. These attorneys reside and practice in far-flung locations, such as New Orleans, Louisiana; Lexington, Mississippi; Washington, D.C.; Houston, Texas; San Francisco, California; and Mobile, Alabama.

The same trends were evident in the actions filed in the courts of the other two counties. In Jefferson County, Texas, 58 percent of the law firms appearing on complaints listed addresses outside the county. Jefferson County was the venue of choice for attorneys from Houston, Dallas, Washington, D.C., San Antonio and Baton Rouge, who made the trek to Jefferson County (about 75 miles east of Houston) to file their actions. In Palm Beach County, 60 percent of the law firms appearing on class action complaints listed office addresses outside the county.

Another trend that was evident in the research was the use of “cut-and-paste” complaints in which plaintiffs’ attorneys file a number of suits against different defendants in the same industry challenging standard industry practices. For example, within a one-week period early this year, six law firms filed nine nearly identical class actions in Madison County alleging that the automobile insurance industry is defrauding Americans in the way that they calculate claims rates for totaled vehicles.60 Another group of law firms filed two class actions against automobile insurers (one of which lists 20-plus defendants) involving reimbursement for replacement parts.61

A third group of lawyers filed five class actions in Palm Beach County challenging companies that sell interests in the life insurance policies of critically ill patients.62

Needless to say, when large numbers of very similar lawsuits attacking many players in the same industry coalesce before the same court and involve the same counsel, the situation does not appear to be mere happenstance. These facts tend to confirm what has long been suspected—that the impetus for filing class actions generally comes from lawyers eager for substantial attorneys’ fees, not individual consumers seeking redress for their grievances.

In this regard, a glance at the websites of some of the class action law firms active in Madison County is informative. For example, the website of one of the law firms involved in the automobile insurance class actions boasts that the firm has brought 24 nationwide class actions in Madison County, challenging a broad array of practices in a number of industries. The firm’s website advertises that it specializes in class actions that seek less than $500 in damages on behalf of consumers and that it is currently involved in a number of class actions, including: (1) lawsuits against ten automobile insurance companies over the standard “medical payment” provisions in automobile insurance policies; (2) lawsuits against three automobile manufacturers over allegedly defective paint processes; (3) a lawsuit against UPS for its policies for excess value insurance; (4) a suit against the manufacturers of air purifiers; and (5) a suit against Sprint on behalf of everyone who ever got disconnected on a cell phone call.63 Another firm that is involved in ten of the class actions identified by the research in Palm Beach County advertises on its website that “more claimants mean greater potential liability for defendants. Because there is greater potential liability, these lawsuits become worthwhile for lawyers to prosecute on a contingent-fee basis.”64

D. Many Of The County Court Cases Were “Copy Cat” Class Actions, Duplicative Of Other Pending Litigation.

As both the Senate and House Judiciary Committees have noted in recent reports, the jump in the numbers of state court class actions has resulted in part from the increasingly common practice of filing “copy cat” class actions—duplicative class actions that assert the same claims on behalf of essentially the same people in a number of different courts.65 Sometimes these class actions are brought by attorneys vying to take the lead role in any potential lucrative settlement with the defendant. In other cases, the strategy is to go fishing in a number of ponds—to file many identical lawsuits before many different court, hoping to land the big one with a favorable judge somewhere. When such copy-cat class actions are filed in federal courts, the federal judiciary can address this problem by establishing a multi-district litigation (“MDL”) proceeding; however, there is no analogous multi-state procedure to address the duplication and waste caused by multiple class action filings in different states.

Not surprisingly, all of the counties surveyed in the study were sites for “copy cat” class actions. For example, Flanagan v. Bridgestone/Firestone Inc.,66 a Palm Beach County suit, was one of nearly 100 identical class action lawsuits that have been filed against Bridgestone/Firestone, Inc., and Ford Motor Company since the Firestone tire recall was announced in August 2001. Similarly, the Kaiser v. Cigna Corp. case in Madison County, Illinois67 is duplicative of several class actions that have been filed against Cigna on behalf of the same or similarly defined nationwide classes. Other “copy cat” cases discussed below include a suit against Smith Barney involving its employee investment plan that was substantially the same as a case pending in federal court. There were even “copy cat” cases within the survey itself. As discussed in Sections IV.A and IV.B below, a number of automobile insurance cases filed in Jefferson County sought to certify the same nationwide classes as cases filed in Madison County.

In both the Firestone tire litigation and the HMO litigation, the federal court cases have been consolidated in MDL proceedings (in fact, the Flanagan case was removed to federal court and consolidated in an MDL proceeding before plaintiffs sought to dismiss it voluntarily).68 But plaintiffs’ counsel often go to great lengths to avoid such MDL proceedings by making their cases “removal-proof” in the hopes that they can establish an alternative litigation (ideally in a friendly venue) to the federal court proceeding. This strategizing not only results in judicial waste, but also pits federal judges and state court judges against each other on issues like the appropriateness of class certification or proposed settlements, compromising judicial comity. As Chief Justice William Rehnquist has noted: “[W]e can no longer afford the luxury of state and federal courts that work at cross-purposes or irrationally duplicate one another.”69

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WHAT THE PRESS SAID:

Study finds Madison County has most class action suits per capita | Associated Press, 9-11-2001
Class-Action Suits Soar In Madison County, Study Says; Think Tank Argues For Moving Cases To Federal Court | St. Louis Post-Dispatch, 9-11-01

SUMMARY:
Increasingly, academics and policy makers are concerned that a handful of state courts, may be effectively making law for 49 other states in addition to their own, or applying their own state law to citizens of other states. This study reveals that the authority to certify national class actions is, in fact, providing local judges with the ability to dictate national policy over a vast array of issues and industries.

TABLE OF CONTENTS:

About the Authors

Authors’ Acknowledgements

I. THE IMPETUS FOR EXPANDING FEDERAL JURISDICTION OVER INTERSTATE CLASS ACTIONS.

II. THE EMPIRICAL CASE FOR EXPANDING FEDERAL JURISDICTION OVER INTERSTATE CLASS ACTIONS.

A. The Current Congressional Record.

B. The 2001 County Court Data Collection Effort.

III. THE COUNTY COURT RESEARCH PROJECT: PRIMARY FINDINGS.

A. The County Courts Experienced Class Action Filing Rates That Were Disproportionate To Their Populations.

B. Surprisingly Numerous Cases Involved Named Parties Who Reside Outside The County Court’s Vicinity.

C. The County Courts’ Class Action Dockets Are Monopolized By A Small Cadre Of Out-Of-County Plaintiffs’ Counsel.

D. Many Of The County Court Cases Were “Copy Cat” Class Actions, Duplicative Of Other Pending Litigation.

IV. THE COUNTY COURT SURVEY: THE INDIVIDUAL COURTS AND THEIR CLASS ACTION DOCKETS.

A. Madison County, Illinois: A Projected 3650% Increase In Class Action Filings Over Four Years.

B. Jefferson County, Texas: Class Action Filings Double Over 1998-2000 Period.

C. Palm Beach County, Florida: Class Action Filings Up By 34%.

CONCLUSION

Appendix of Statistical Tables

Table 1: Populations Of Counties Surveyed, With Comparisons To Other Counties With Large Class Action Dockets

Table 2: Retail Sales and Manufacturers Shipments by County, with Comparisons to State and National Values

Table 3: Per Capita Class Action Rate Of Counties Surveyed

Table 4: Repeat Appearances By Plaintiffs’ Counsel

Notes

 


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