The Mission of the Manhattan Institute is
to develop and disseminate new ideas that
foster greater economic choice and
individual responsibility.

Civil Justice Report
No. 3  September 2001


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


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

As noted above, the two key findings of the survey were that class actions increased in all three counties during the period surveyed and that many—if not most—of these cases had little relationship to the counties in which they were brought. There were, however, some variations among the county courts’ class action experiences. Most notably, Madison County appears to be an outlier among outliers, with an even more disproportionate number of class actions and an even greater percentage of nationwide class actions than the other counties surveyed. In contrast, Palm Beach County had a significant number of class actions with some local orientation (i.e., Florida-specific claims) and fewer class actions per capita. Below, we analyze the survey results on a county-by-county basis and discuss several of the nationwide class actions that were filed in each of the counties during the period surveyed.

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

Madison County covers 725 square miles in southwest Illinois and borders the Mississippi River.70 The two largest towns are Granite City and Alton, with populations of 31,301 and 30,496, respectively.71 The largest private employer is the Olin Corporation, an ammunitions manufacturer, with 4,000 employees.72 Judges in Madison County are elected by popular vote and serve six-year terms.73

In the Third Judicial District of Madison County, Illinois, 70 purported class actions were filed between February 1998 and March 2001, of which 81 percent (57 cases) were brought on behalf of putative nationwide classes. The breakdown for each year is on the table below.

Year

Number of Class Actions Filed

Number Brought on Behalf of Proposed Nationwide Classes

Percentage Increase In Total Class Actions From Prior Year

1998

2

2 (100%)

*

1999

16

15 (94%)

700%

2000

39

29 (74%)

144%

2001 (Through March 7)

13

11 (85%)

92% (projected)

In analyzing the Manhattan Institute research, Madison County stands out even among other counties with disproportional class action dockets for two distinct reasons—(1) the recent exponential increase in class action filings and (2) the relative dearth of cases involving local defendants. This comports with anecdotal evidence suggesting that Madison County is a very favorable venue sought out by plaintiffs’ attorneys seeking to bring nationwide class actions. The popularity of this venue is evident from the statistics on class action filings over the last several years, which show a steep increase in filings among the class action plaintiffs’ bar.

During calendar year 1998, the Madison County court handled two nationwide class actions filed that year. The first, Rice v. National Steel Corp.,74 was certified as a nationwide class alleging underpayment on a profit sharing plan. The second, Morrow v. J & B Importers, Inc.75 was certified for settlement as a national class alleging overcharges on shipping. Those results seem to have started the ball rolling in Madison County. Within two years, the number of class actions filed in that jurisdiction had increased by a factor of 20, with 39 purported class actions filed in 2000. If the balance of calendar year 2001 keeps pace with the first three months, 75 class actions will be filed in the Madison County judiciary this year, an increase of 3650 percent over calendar year 1998. Moreover, the vast majority of these cases will be nationwide class actions. Clearly, something is drawing plaintiffs’ counsel to this court.

A brief summary of some of the nationwide class actions currently pending in Madison County provides a window on the breadth of these lawsuits and reflects the concerns discussed above about the propriety of a locally elected judge resolving all of these disputes—many of which have no real local nexus—on a nationwide basis from a county courthouse in Madison County:

Automobile Repair—Wheeler v. Sears, Roebuck & Co.,76 is a purported class action on behalf of 30 million consumers, alleging that Sears’ tire balancing service was deceptive and seeking to recover between $12.50 and $50 for each purported class member. As the Complaint readily admits, the allegedly offensive conduct took place at “more than 800 Tire and Auto Centers throughout the United States.”77 Of course, the obvious question is: Why is this suit being brought in Madison County? The Complaint contends that Madison County is the proper venue for this nationwide class action, because the single named plaintiff resides there and Sears is authorized to conduct business within Illinois.78 That is the sum total of the connection plaintiff’s counsel attempts to establish. What the complaint fails to mention is that there are only nine Sears Automotive Repair shops in the entire state of Illinois—and only one in Madison County.79 Thus, despite the fact that the vast majority of Sears tire centers have no nexus whatsoever to Madison County, plaintiff’s counsel would have a locally elected county judge resolve this dispute on behalf of a broad class of individuals from all 50 states. Moreover, in seeking to allege claims for violation of consumer fraud law, the Complaint glosses over the substantial differences in various states’ laws and policies and simply asserts that the Illinois Consumer Fraud Act applies to the claims of all putative class members nationwide.80

Telephone Bills—Ott v. MCI Worldcom Communications, Inc.81 is a case brought by a Maryland resident (who used to live in St. Clair County, Illinois) against a Delaware corporation that is headquartered in Mississippi on behalf of a nationwide class of MCI customers. The Complaint seeks class action status for a nationwide class of “thousands” of phone customers who the named plaintiff contends were “bait and switch” victims, because they were charged more than the advertised rate for long-distance telephone service. Plaintiff’s counsel baldly alleges that his choice of venue is appropriate under Illinois law, but not surprisingly, fails to explain exactly why the Madison County courts are the right forum in which to adjudicate his claim. After all, none of the parties is located in Madison County, and obviously only a very small percentage of MCI’s 20 million long-distance customers82 live or work there.

Despite the lack of any apparent nexus between the dispute and the courthouse selected for the suit, the Complaint asks the Madison County court to issue an injunction preventing “the defendant from continuing the policies and practices [regarding billing]” if the court finds that MCI WorldCom violated, among other home-grown laws and statutes, Illinois’ Deceptive Business Practices Act.83 Here too, plaintiff’s counsel has selected Madison County for a reason that is not immediately apparent from the Complaint, raising the question of whether it is appropriate for a Madison County judge to dictate new national billing policies to a major long-distance company when there is no real local interest in the case.

Cell Phone Connections—Snyder v. Sprint Spectrum L.P.84 seeks to certify a class of all Sprint PCS customers who have experienced a “dropped call.” According to the Complaint, which is brought by two named plaintiffs (only one of whom is a Madison County resident), Sprint misrepresented the clarity of its cellular phone service by advertising that it would provide “remarkably clear” and “consistent nationwide service.”85 The Complaint contends that the Madison County venue is proper because “Sprint conducts substantial business in Madison County” and “the transaction or some part thereof . . . occurred in Madison County.”86 Of course, Sprint also conducts the vast majority of its business outside of Madison County, Illinois. As plaintiffs’ counsel attest, “Sprint is one of the largest cellular telephone service companies in Illinois and throughout the United States.”87 More specifically, Sprint, which is headquartered in Kansas City, is the fourth largest cellular telephone provider in terms of customers with more than 10.8 million direct and resale subscribers and more than 1 million affiliate subscribers, providing service in more than 4,000 cities and communities across the country.88 Even if every member of every household in Madison County (including infants, children and the elderly) subscribed separately to Sprint’s cellular service, they would still only account for 2.2 percent of Sprint’s business. Nonetheless, this class action places before a locally elected Madison County judge an effort to seek redress for supposedly countless disconnected phone calls that affected “thousands of persons” throughout the United States,89 that occurred for a number of disparate reasons, and that potentially implicate the laws of 50 different states.

Clogged Drains—In Garvey v. Roto-Rooter Services Co.,90 a lone Madison County resident is suing on behalf of customers residing in 31 states91 and the District of Columbia, alleging that their drains were repaired by unlicensed plumbers under the defendant’s auspices. The Complaint does not allege that the service was performed poorly. Instead, the grievance is that the plaintiff and putative class members allegedly were deceived because the individuals who performed their services were not licensed plumbers. According to the Complaint, “there are thousands of members of the class whose identities can be easily ascertained by the records and files of ROTO-ROOTER.”92 Obviously, at best, only a small number of these putative class members hail from Madison County. There is no Roto-Rooter operation in Madison County; to the extent (if any) that the defendant provides service to Madison County, it is provided by a franchisee based in St. Louis, Missouri.93 Thus, in this case, the named plaintiff seeks to put a non-Illinois company that does only a minuscule amount of local business (at most) on trial in Madison County for practices that affect citizens in a multitude of states. Moreover, the policies implicated in this case are particularly inappropriate for multi-state resolution because plumbing licenses are obviously a local concern, with each state setting its own standards and regulations on such licenses. Perhaps it is appropriate for a Madison County court to issue a ruling that interprets Illinois’ laws regarding plumbing licenses; but how can one county judge possibly adjudicate a matter that involves the disparate plumbing laws and regulations of 32 jurisdictions?

Automobile Insurance—Replacement Parts—Hobbs v. State Farm Mutual Automobile Insurance Co.94 and Paul v. Country Mutual Insurance Co.,95 allege that car insurance companies have violated their contracts and acted deceptively by refusing to provide original equipment manufacturer (“OEM”) parts to policyholders involved in car accidents. These two cut-and-paste complaints seek to capitalize on the plaintiffs’ victory in a nearly identical case, Avery v. State Farm Mut. Auto Ins. Cos.96 In Avery, another Illinois county court certified a nationwide class on these issues, and at trial, a jury awarded a verdict of $1.18 billion against defendant State Farm. The Avery case received broad media attention because the judge granted class certification and allowed the jury verdict to stand, even though several insurance commissioners testified that a ruling in favor of the nationwide proposed class by an Illinois court would actually contravene the laws and policies of other states, which have enacted laws encouraging (or even requiring) insurers to use less expensive, non-OEM parts in making covered accident repairs to motor vehicles as a means of containing the cost of auto insurance coverage.

In upholding the Avery jury’s award earlier this year, an Illinois court of appeals found that “the question of whether laws of different states apply to specific transactions alleged in a class action does not ordinarily prevent certification of the class.”97 According to the court, “there were no true conflicts between the substantive laws of Illinois and those of the other states whose residents were part of the class.”98 Moreover, the court discounted testimony from “[f]ormer and current representatives of state insurance commissioners [who] testified that the laws in many of our sister states permit and in some cases . . . [even] encourage competitive price control.”99 According to the appellate court, this testimony was irrelevant because of the trial court’s finding that the parts were inferior.100 As The New York Times reported at the time, the import of the Illinois decision was to “overturn insurance regulations or state laws in New York, Massachusetts, and Hawaii, among other places” and “to make what amounts to a national rule on insurance.”101

Perhaps not coincidentally, the number of insurance cases in Madison County has grown significantly in the period since the Avery verdict. The willingness of certain Illinois state courts to serve as free-roving insurance commissioners and issue edicts that affect the way insurance companies can do business in 49 other states may explain why 26 class action law suits have been filed in Madison County against insurance companies in the last few years.

The Paul Complaint was filed by a geographically dispersed coalition of 10 plaintiffs’ counsel located throughout the country—and one named plaintiff who resides in Granite City, Illinois—against Country Mutual, an insurance company that is based in Bloomington, Illinois (150 miles from Madison County) and that offers insurance policies in nine states.102 The Hobbs case was brought by a number of class action law firms spread across the country103 against more than 20 insurance companies. In Hobbs, plaintiffs’ counsel are suing on behalf of any State Farm customers who made claims for vehicle repairs after the Avery case was decided and on behalf of policy-holders from more than 20 other large automobile insurance companies that were not included in the Avery case.104 Of course, the named plaintiff (since there is only one) is only insured by one of these insurance companies (State Farm). There are no named plaintiffs who claim to have bought policies from any of the other 20-plus insurance companies targeted by this class action.

In seeking to justify the selection of the Madison County judiciary as the nationwide105 arbiter of these car insurance disputes, the Hobbs Complaint alleges simply that “plaintiff Shannon Hobbs, and one or more class members, are residents of this County, each of the defendants conducts substantial business in this State, and the actions at issue in this case took place in significant part in this State.”106 In fact, a “significant part”—or more accurately, the overwhelming part—of the allegations took place outside of Madison County and outside Illinois. The 20-plus insurance companies against which this case is brought (none of which is headquartered in Madison County and only eight of which are headquartered in Illinois), account for nearly 40 percent of the automobile insurance premiums paid annually throughout the United States.107 More than 99 percent of these policies are sold outside Madison County, and 97 percent are sold outside Illinois.108 Indeed, plaintiffs’ counsel readily admit that the proposed class “includes millions of geographically dispersed insureds” (whereas Madison County only has 250,000 residents).109 Plaintiffs are thus asking a judge to issue an edict affecting the way major automobile manufacturers must handle millions of insurance claims that were issued outside the county—and indeed, outside the state of Illinois.

In short, plaintiffs’ counsel in Hobbs seek to put the entire automobile insurance industry on trial in Madison County based on one Madison County resident’s experience with one insurance company. If this case is certified and tried, its ramifications would reach far beyond Madison County. One Madison County judge could be single-handedly responsible for dramatically increasing the price of automobile insurance for all Americans and adversely affecting the non-original manufacturer automobile parts industry. The ability of one locally elected judge to exercise that much power raises serious federalism questions.

Automobile Insurance—Value Of Wrecked Vehicles—As noted above, a group of six plaintiffs’ counsel (only one of whom is actually resident in Madison County) filed nine separate insurance class actions in Madison County over a three-week period in early 2001, alleging that nine major insurance companies have engaged in fraud by miscalculating the value of wrecked vehicles. These cases—also presumably spawned by the Avery verdict—were brought against nine major insurance companies, alleging that all the defendants contracted with a company (based in Illinois) to provide “biased, below-market estimates of vehicle values.”110 Among the violations claimed by plaintiffs are violations of the Illinois Consumer Fraud Act and “similar state consumer protection statutes” in the other states where the defendant insurance companies do business.111

All nine of the cases seek to certify nationwide classes that allegedly have thousands of members. For example, in the Schoenleber case, which was brought against Prudential, the Complaint alleges that “[t]he plaintiff class includes thousands of policyholders whose vehicles have been declared a total loss.”112 (The Schoenleber complaint also seeks to certify a defendant class that consists of at least “25 Prudential entities” that use the challenged claims adjustment program.)113 Similarly, in the nearly verbatim motions for class certification filed in all nine cases, plaintiffs’ counsel allege that the proposed plaintiff classes “consist of thousands of persons who reside throughout Illinois and the United States.”114 This is no exaggeration. Prudential, the defendant in Schoenleber, is a New Jersey company headquartered in Newark with approximately two million outstanding automobile policies in forty-eight states.115 Geico, the insurance company targeted in the Billups case, is a Maryland corporation licensed to provide automobile insurance to consumers in 48 states and the District of Columbia, with “over 4.7 million policy-holders and 7.3 million automobiles insured as of [December 2000].”116

Once again, other than alleging that the defendants have “transacted substantial business in Madison County, Illinois,”117 the complaints in these cases offer no compelling nexus between the plaintiffs’ broad nationwide claims against non-resident corporations and the small county in which they have sued. Moreover, by alleging that the Illinois-based provider of the valuation software engaged in conspiracy with the insurance companies,118 plaintiffs in the nine cases have effectively shielded all of the cases from removal to federal court—since all have at least one in-state defendant—clearing the way for a Madison County judge to set nationwide policy on yet another facet of the automobile insurance industry.

Automobile Insurance—Medical Treatment—Another cluster of lawsuits filed in Madison County during the time period researched involved 10 virtually identical suits against a number of automobile insurance companies alleging that these companies engaged in statutory fraud under the Illinois Consumer Fraud Act “and the substantially similar consumer fraud statutes of sister states”119 with regard to medical claims resulting from car accidents. According to the complaints in these cases, the defendant insurance companies engaged in fraud because they adjusted accident victims’ medical claims by using biased utilization review organizations, medical exams and computer-generated reports.120 Plaintiffs’ counsel readily admit that most of these putative class members have no relationship to Madison County. For example, in Hernandez v. American Family Mutual Ins. Co.,121 the Complaint alleges that “AFI is one of the largest automobile insurers in the United States. The classes include tens of thousands of policyholders geographically dispersed throughout the United States, thousands of whom reside in Illinois.”122 Plaintiffs’ counsel do not provide any support for their belief that “thousands” of class members reside in Illinois and offer just one example of a potential class members who lives in Madison County—the single named plaintiff. Given that AFI, a Wisconsin company, has issued more than 7 million policies in more than 15 states, Madison County likely accounts for only a very small portion of its business, and the company’s insurance policies are governed by the laws of 14 other states in addition to Illinois.

Certainly, it is appropriate for the named plaintiff, who was allegedly involved in an automobile accident, to sue his insurance company in Madison County if he believes that he was not properly reimbursed for his medical expenses. But the more important question is why his lawyers have chosen to sue AFI and a number of other insurance companies in Madison County on behalf of every American with an automobile policy outside of Madison County and thereby seek to turn the Madison County courthouse into a nationwide insurance czar. Notably, despite these policy concerns and the substantial difficulties of applying numerous state laws in one judicial proceeding, at least one of the so-called “medpay” class actions has already been certified for nationwide treatment, giving plaintiffs’ counsel an incentive to bring even more of these lawsuits.123

Barbie Dolls—Cunningham v. Mattel, Inc.124 is a nationwide class action claiming that consumers paid too much for “limited edition” Barbie dolls that were later sold by Mattel at a lower price through other vendors. Plaintiff, a Madison County resident and purported Barbie doll collector, seeks to represent a class of “thousands” of people throughout the country who have purchased such “limited edition” Barbie dolls. The only explanation plaintiff’s counsel provides for bringing this nationwide suit in Madison County is the statement that Mattel, a California corporation, is “engaged in the manufacture, sale and distribution of toys, including Barbie dolls, throughout the United States, including Madison County, Illinois.”125 Plaintiff does not allege—and there is no reason to believe—that Madison County is a Mecca of Barbie collectors or otherwise has a particularly strong interest in resolution of this suit. And while on the surface, a suit about Barbie dolls may not seem to raise important civil justice policy issues, the case does present broader-ranging issues about the responsibility of a manufacturer to maintain the retail value of a product. Thus, once again, a locally elected county judge is being asked to set a policy for 50 states on an issue with potentially wide ramifications for consumers and businesses.

Environmental—England v. Atlantic Richfield Co.126 and Mizukonis v. Atlantic Richfield Co.127 are two nearly identical lawsuits filed by the same law firm that seek to hold all of the major gasoline manufacturers in the United States (including ARCO, Exxon Mobil and Chevron to name a few) liable for allegedly contaminating the nation’s groundwater with methyl tertiary butyl ether (“MTBE”), a fuel additive that was approved by the Environmental Protection Agency (“EPA”) to help reduce carbon dioxide emissions. The two suits are brought on behalf of individuals who own non-commercial property in 16 states and rely on private wells for their drinking water. Plaintiffs’ counsel claim that there are “hundreds of thousands of members” in their putative class,128 but that venue is nonetheless appropriate in Madison County “because at least one of the Plaintiffs resides and owns real property wherein a private well is located in Madison County.”129

These two cases highlight the inefficiency that results from dueling class actions. The England case has been removed to federal court and transferred to an MDL proceeding.130 The Mizukonis case, however, which plaintiffs sought to make removal-proof by alleging that any damages are “less than Seventy-Five Thousand Dollars” per plaintiff,131 is still pending in state court in Madison County and is thus being litigated separately from the ongoing, consolidated federal court litigation.

According to the Mizukonis Complaint, defendants engaged in negligent and conspiratorial behavior by allegedly failing to perform standard toxicological tests on the effects of MTBE and thus “expos[ing] millions of Americans, including Plaintiffs, to potential harm without warning of the potential health risks associated with MTBE.”132 Based on these allegations, plaintiffs’ counsel are seeking compensation for two subclasses—a testing subclass and an alternative drinking supply subclass. As the Complaint itself attests, MTBE is an issue that has received national—and federal—attention. In fact, the EPA is currently engaged in a rulemaking proceeding that seeks to address any contamination issues addressed by the gasoline industry’s use of MTBE and whether the additive should be removed from gasoline.133 Despite the federal role in this broad ranging environmental policy, plaintiffs’ counsel would have a locally elected Madison County judge issue a broad ruling that addresses: (1) whether MTBE “adversely impacts groundwater”; (2) whether the gasoline industry failed to adequately test MTBE; and (3) whether the gasoline industry conspired to conceal and/or misrepresent the risks of MTBE for government, agencies, regulators and the public at large.134 Whatever the court decides, the ruling could have a profound impact on the practices of the entire gasoline industry and/or the drinking water of millions of Americans who have no connection to Madison County. At the same time, the ruling could undermine the federal government’s statutory role in regulating the gasoline industry and protecting the air and water supply of millions of Americans and contradict any ruling by the federal court in New York that is presiding over the MDL proceeding.

Cable Late Fees—In Unfried v. Charter Communications, Inc.135 a Madison County judge approved a settlement for a nationwide class composed of “[a]ll [Charter] residential cable subscribers located in the continental United States”136 (with the exception of six states) who were allegedly charged improper cable late fees. Charter Communications is among the nation’s largest cable companies and currently serves approximately 7 million customers in 40 states.137 Obviously, only a very small percentage of those customers reside in Madison County. Indeed, even if every household in the entire county subscribed to Charter, Madison County would still account for just 1.5 percent of the cable company’s customers. In seeking to explain why this suit was filed in Madison County, the Complaint merely states that “Charter received substantial compensation and profits from sales of cable television in Madison County.”138 This attenuated relationship did not stop a locally elected Madison County judge from entering a settlement order that (a) required Charter to change its late fee billing policies throughout the country, (b) provided no compensation to the putative class for any past late fee billing problems, and (c) provided plaintiffs’ counsel with $5.6 million for their efforts (which spanned only 23 months).139

Shipping Fees—In Smith, Allen, Mendenhall, Emons & Selby v. The Thomson Corp.,140 a Madison County judge certified a nationwide class of law firms and other businesses that were allegedly charged extra shipping fees when they purchased certain reference books. The case was brought by three law firms located in Madison County.141 According to the Complaint, the class, which includes “[a]ll persons who are subscribers to the defendants’ CD-Rom libraries, or who purchased or leased CD-Roms from defendants, and who have been charged transportation and handling costs . . . above the actual cost of transportation and handling. . . ,”142 purportedly consists of “thousands of subscribers throughout the United States.”143 Although this class potentially includes thousands of law firms and law libraries across the United States, Madison County is home to just 89 law offices144 and no law schools (and plaintiffs only list the names of three law firms in the county that actually subscribed to the service). Moreover, Thomson is a Canadian company with no business operations in Illinois. Nevertheless, the court certified the widely dispersed class for trial under Illinois and Minnesota law for purchases that were made throughout the United States.145

Fiber Optic Cable Trespass Claims—Poor v. Sprint Corp.,146 which lists three named plaintiffs (only one of whom owns land in Madison County, Illinois), alleges that Sprint Corp. trespassed on the land of millions of property holders nationwide while installing fiber optic cable. In this case, plaintiff’s counsel sought to certify a nationwide class that included “all current and former owners of land in the United States that is or was subject to an easement for a limited purpose held by a railroad, pipeline, energy or other utility company on which SPRINT has entered to install or maintain fiber optic cable without obtaining the consent of the owner of the land.”147 According to the Complaint, Sprint “agreed to pay tens of millions of dollars to the railroads, pipeline, energy, or other utility companies” that had easements to individuals’ property when it should have entered into individual agreements with each of the property owners.148 Given that Sprint has installed more than 23,500 route miles of fiber optic cable throughout the United States149 —and that Madison County covers just 900 square miles—the vast majority of the individuals involved clearly live outside of Madison County (and outside of Illinois, for that matter). Indeed, as noted above, two of the three named plaintiffs in this action live elsewhere—one in Tennessee and one in Texas.

The history of this case provides a lens into some of the potential benefits of federal court class action practice over state court practice. The first time Sprint sought to remove the case to federal court it was remanded because one of the named plaintiffs was from Kansas, where Sprint has its principal place of business.150 After the Kansas plaintiff was dropped from the case (the defendants decided to acquiesce in its removal for reasons not apparent from the docket), it was removed again, and a federal judge certified a class.151 The defendants appealed the class certification order under a recently enacted federal rule that allows for immediate appeal of class certification orders, and the U.S. Court of Appeals for the Seventh Circuit recently reversed the certification.152 (In contrast to this federal provision (Fed. R. Civ. . 23(f)), the vast majority of states allow appellate review of class certification orders only in very rare circumstances, or deny it altogether.)

In its decision, the Seventh Circuit held that that class certification was “decidedly inappropriate” in a case that “involves different conveyances by and to different parties made at different times over a period of more than a century . . . in 48 different states . . . which have different laws regarding the scope of easements.”153 The Seventh Circuit’s strongly worded decision only highlights the inappropriateness of the forum in which the case was originally brought. Had plaintiffs not agreed to drop the Kansas plaintiff (which was an almost-unheard of step in class action practice), this case would still be proceeding in Madison County and one local court would have been called upon to issue a broad ruling that affected the property rights of thousands of Americans even though the claims that plaintiffs allege—trespass, unjust enrichment and slander of title and property—implicate highly localized laws and policies that vary from state to state and are (as the Seventh Circuit found) highly unsuitable for class certification.

* * *

In sum, Madison County judges have been asked over the last two years to set national policy on issues that could affect the daily lives of millions of Americans throughout the country—from what water they drink to how much they pay for their next insurance policy or telephone bill—all from a small courthouse in southwest Illinois.

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

Jefferson County, with a population of 252,051 in the 2000 Census, covers approximately 900 square miles and is located 75 miles east of Houston.154 The two largest cities are Beaumont and Port Arthur, with populations of 113,866 and 57,755, respectively.155 Judges in Jefferson County are elected by popular vote for four-year terms.156 The county’s largest private employer is the Huntsman Corporation, a chemical company, with 1300 employees.157 Certainly, it is not the type of place where most people would expect to find complex, civil litigation with a national scope.

While the Manhattan Institute research revealed a smaller number of class actions in Jefferson County (versus Madison County), the trends are similarly disproportional. Between April 1998 and January 2001, 49 class actions were filed in the 60th Judicial District of Jefferson County, Texas, of which 27 were brought on behalf of putative nationwide classes.158 Moreover, as with the other locales included in the research effort, the number of class actions grew steadily over the period surveyed. Between 1998 and 2000, the number of class actions filed in Jefferson County nearly doubled, and most of the additional cases involved requests for nationwide classes. The breakdown for each year is:

Year

Number of Class Actions Filed

Number Brought on Behalf of Purported Nationwide Classes (Percentage of Total)

Percentage Increase In Class Action Filings From Prior Year

1998

11

4 (36%)

*

1999

15

9 (60%)

36%

2000

20

14 (70%)

33%

2001(Jan. only)

1

0 (0%)

*

The business sectors under attack in the nationwide class actions pending in Jefferson County courts include technology, automobile insurance, retail practices and medical equipment. In most of the cases, there is no obvious nexus between the alleged dispute and the choice of Jefferson County to adjudicate the plaintiffs’ claims. The following sample of the class actions that the Manhattan Institute study found pending in Jefferson County provides a sense of the breadth and potential nationwide ramifications of these cases:

Computers—Lapray v. Compaq Computer Corp.,159 brought by three named plaintiffs in Jefferson County, alleges that Compaq sold certain computers with defective floppy diskette controllers, resulting in the “storage of corrupt data or the destruction of data without the user’s knowledge.”160 The Complaint seeks to certify two classes: a nationwide equitable relief class and a nationwide damages class.161 According to plaintiffs’ counsel, “the classes consist of thousands of persons making the members so numerous that joinder of all members of any classes would be impracticable.”162

In seeking to explain why plaintiffs’ counsel have sued Compaq in Jefferson County, the Complaint simply states that two of the named plaintiffs purchased their Compaq computers in Jefferson County and all three use their computers in Jefferson County.163 Jefferson County, as noted above, is a very small county, with just 92,880 households. In contrast, Compaq, a very large company, sold 1.78 million computers in the third quarter of 1999 alone.164 Obviously, most of its business is going elsewhere. Thus, once again, two questions arise: Why do plaintiffs’ counsel seek out Jefferson County when they wish to file class actions? And should a Jefferson County judge be responsible for effectively issuing standards that govern how personal computer manufacturers throughout the country configure and market their computers?

Retailing/Rental Issues—In Scott v. Blockbuster, Inc.,165 plaintiffs’ counsel have sued on behalf of a putative nationwide class of individuals who paid late fees for home video rentals. Blockbuster operates 4,800 domestic stores—one “within a ten-minute drive of virtually every major U.S. neighborhood,” collectively serving 42 million American households.166 Jefferson County, on the other hand, has a total of six Blockbuster stores167 that serve (at most) 92,880 households.168 Despite the 41.9 million households who rent videos elsewhere, the plaintiffs claim that Jefferson County is the proper venue because “all or a substantial part of the events or omissions giving rise to the claims occurred in this county.”169 Notably, although Blockbuster has its principal place of business in Dallas, Texas, plaintiffs have chosen to file their action in Jefferson County (330 miles away), presumably because they consider it to be a more favorable venue. While many would consider video late fees a mere annoyance (not an earth-shaking commercial issue), this lawsuit could have profound impacts on the way companies do business throughout the country and what types of fees they are (or are not) allowed to charge. Once again, the obvious question raised by these suits is whether a locally elected judge in Jefferson County should be making decisions that have broad ramifications for the conduct of commerce and the 99.9 percent of retail business in the country that occurs outside of Jefferson County.

This question has taken on new significance in light of Blockbuster’s reported agreement to settle this case on a nationwide class basis. Under the proposed settlement (which has reportedly received preliminary approval from the Jefferson County court), customers would get varying amounts of benefits.170 For example, a customer who claimed payment of $30 in late fees would get two free movie rentals and five $1 coupons good toward the purchase of non-food items.171 Initially, Blockbuster announced that the various coupons to be issued would have a face value of $460 million, but the company has now acknowledged that fewer than 10 percent of the coupons will be used and that it will not be changing its late fee policy.172 If the settlement is approved, plaintiffs’ class counsel will be paid $9.25 million in fees and expenses. One commentator has observed that “the real winners in the settlement are the lawyers who sued the company,” who will be paid “in cash, not coupons.”173

Medicine—In Rawls v. Mentor Corp.,174 the plaintiff allegedly sustained injuries after undergoing a breast augmentation procedure performed in Beaumont (a town in Jefferson County). Plaintiff alleges that the saline breast implants she received, one of which later deflated, were defective and caused her pain, mental anguish and disfigurement.175 She is therefore suing Mentor on behalf of all persons who have been injured by the company’s saline breast implants.

Mentor Corporation is a medical products company headquartered in California with a manufacturing facility in Irving, Texas (which is near Dallas and not near Jefferson County). Last year, the company sold its products in more than 60 countries.176 Jefferson County has only a handful of plastic surgeons, and Mentor has no corporate presence there. Thus, there is no obvious nexus between the class action allegations and the venue selected by plaintiffs’ attorney.

Extended Warranties—Best Buy is a discount electronics retail chain with 400 stores in 41 states, only one of which is located in Jefferson County.177 In Brew v. Best Buy Co., Inc.,178 two Jefferson County residents who purchased a computer from Best Buy along with an extended warranty allege that Best Buy violated consumer fraud laws, breached its contracts and engaged in negligence and common law fraud because the extended warranty turned out to be much narrower than they understood it to be at the time of purchase. According to the Complaint, Best Buy “entered into a corporate wide scheme to institute high pressure sales techniques involving the extended warranties to reap substantial ill-gotten gains” and “erect artificial barriers to discourage consumers who purchased the ‘complete extended warranties’ from making legitimate claims.”179

Based on these allegations, plaintiffs’ counsel have asked a Jefferson County court to certify a class composed of “[a]ll persons and entities throughout the United States that purchased an extended warranty for merchandise from Best Buy or any of its retail store locations.”180 That class, according to plaintiffs, consists of “multiple thousands of members” throughout the United States.181 In seeking to litigate these nationwide claims in Jefferson County, plaintiffs do not attempt to provide any connection between their allegations and Jefferson County (other than their residence there). Indeed, they do not even allege that they purchased their computer at the sole Best Buy store that is located in Jefferson County. Nonetheless, they are asking a local court to issue a ruling that would affect Best Buy’s business practices throughout the country and could have ripple effects on numerous other companies that offer consumers extended service warranties.

Automobile Insurance—Medical Payment—Pego v. Allstate County Mutual Insurance Com.,182 seeks to certify virtually the same nationwide class of claimants as two other cases pending in Madison County and discussed above.183 The case involves allegations that Allstate breached its contracts and defrauded its automobile policy-holders by failing to pay reasonable and necessary medical expenses resulting from car accidents. Although the named plaintiffs live in Jefferson County, plaintiffs’ counsel do not otherwise tie the dispute to the forum in which the suit was brought. To the contrary, the Complaint emphasizes the nationwide implications of the case they have brought and seeks to certify a class of all Allstate policy-holders nationwide who have been denied coverage—in whole or in part—for injuries sustained in car accidents, or whose reimbursements were delayed.184 Allstate, which is headquartered in Illinois, provides automobile insurance to more than 12 percent of insured motorists throughout the country, only a small portion of whom live in Texas (let along Jefferson County).185 As discussed above, resolution of these allegations on a nationwide basis in a county court would have broad implications for the insurance industry that would extend far beyond Jefferson County.

Automobile Insurance—Value Of Wrecked Vehicles—Shields v. Allstate County Mutual Insurance Co.,186 brought by three named plaintiffs whose vehicles were totaled in car accidents, seeks certification of a nationwide class of persons who were insured by Allstate, Farmers and Progressive and received an offer for the value of their vehicle based on a valuation report prepared by CCC Information Services, Inc. The Complaint alleges that CCC prepares “unreliable, inaccurate and biased vehicle valuation reports . . . with the intent of generating vehicle valuations well below the actual cash value or replacement cost of vehicles owned by an insured.”187 As discussed above, a group of plaintiffs’ counsel have brought nine law suits suing nine insurance companies (including Allstate, Farmers and Progressive) in Madison County and making the same claims; thus, all three of the insurance companies being sued in this case are also targets of nearly identical class actions that are pending in Madison County and involve prospective class members.188 (The key difference between the Madison County and Jefferson County cases is the inclusion of CCC as a defendant in the Illinois cases. Presumably, plaintiffs in the Madison Counties included CCC as a defendant because it is an Illinois company and its presence in those cases would therefore prevent defendants from removing the case to federal court; in this case, which is brought in Texas, CCC’s involvement would have no such effect and it is not included as a defendant.)

According to the Complaint, venue is appropriate in Jefferson County because the three named plaintiffs live there and “the actions at issue in this case took place in this State and in Jefferson County.”189 Among the pleadings that the researchers found in the case file was a motion by the defendants to transfer venue to Dallas, where Allstate has its principal Texas office.190

Mobile Home Siding—In Dunn v. Boise Cascade Corp.,191 the named plaintiff, a mobile home owner in Jefferson County, Texas, is suing Boise Cascade for allegedly defective siding and seeks to certify a class composed of all persons in the United States who own mobile homes with exterior hardboard siding manufactured by Boise.192

Although the Complaint alleges that “all or part of the cause of action arose in Jefferson County, Texas,”193 the defendant in the suit is a company incorporated under the laws of Delaware and headquartered in Boise, Idaho. Moreover, only three of the twenty-eight wholesale building materials distribution facilities and ten wood products manufacturing facilities that Boise operates across the United States are in Texas—and none of these are in Jefferson County.194 Before Boise discontinued manufacturing the challenged hardboard siding product in 1984,195 the company was one of just fifteen manufacturers of hardboard siding in the country.

* * *

In the most recent judicial election in Jefferson County, approximately 55,000 people voted for the judge who was elected to the 60th Judicial District.196 That amounts to just one-tenth of one percent of the 50.4 million people who voted for the President who was elected in the same election197 and who is responsible—under the U.S. Constitution—for nominating judges to the federal bench. While the Jefferson County judge will face re-election in just four years, federal judges are protected from political pressure because they are granted tenure and salary protection under the U.S. Constitution. The question remains: Which of these judiciaries should be charged with responsibility for handling large-scale, interstate class actions involving issues with significant national commercial implications?

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

Palm Beach County, the most populous of those included in the Manhattan Institute research, with 1.1 million people, is located in southern Florida and includes well-known resort towns such as West Palm Beach and Boca Raton, with populations of 82,103 and 74,764, respectively.198 The largest private employer is Pratt & Whitney, a jet engine manufacturer, with 4,700 employees.199 Like their counterparts in the other counties surveyed, Palm Beach County judges are elected by popular vote; their term is six years.200

Ironically, Palm Beach County, with a population that is nearly four times that of Madison County, was the site of the same number of class action overall (and eleven fewer nationwide class actions) as Madison County during calendar year 2000. Still, even while Palm Beach County may seem relatively dormant, it has also experienced a substantial increase in class action filings (up 34 percent between 1998 and 2000). And as noted above, the per capita rate of state court class actions was triple the rate of federal filings in 1999.

The Manhattan Institute research indicates that 91 purported class actions were filed in the 15th Judicial Circuit for Palm Beach County between May 1998 and December 2000, of which 46 (51 percent) were brought on behalf of putative nationwide classes. The annual breakdown is illustrated in the table below.

Year

Number of Class Actions Filed

Number of Nationwide Purported Class Actions (Percentage of Total)

Percentage Increase In Class Action Filings From Prior Year

1998

29

20 (69%)

*

1999

23

8 (35%)

*

2000

39

18 (46%)

70%

The two key differences between the Palm Beach County suits and the suits from the other three counties included in the study were that many of the Palm Beach law suits involved defendants located in Palm Beach (or at least Florida) and a smaller percentage of the cases sought nationwide classes. Nonetheless, approximately half of the Florida cases sought to hold defendants liable in a Palm Beach County court for practices that allegedly injured consumers not just in Florida, but throughout the country. Some examples of the nationwide class actions brought in Palm Beach County since 1998 are:

Investment Services—The plaintiff in Foster v. Cabot Money Management, Inc.,201 is a Florida resident (albeit not a resident of Palm Beach County), who alleges that his investment adviser, Cabot Money Management, Inc. (a Massachusetts corporation), breached its contract with him by failing to adhere to its 20 percent stop-loss policy, under which the advisor agreed to sell any stock if its value fell more than 20 percent below the purchase price.202 Based on this one plaintiff’s alleged experience, the Complaint seeks to represent a nationwide class consisting of all persons with Cabot stock accounts who “were not sold out of any stock when the market value of any one stock fell 20% below the person’s average purchase price.”203 According to plaintiff’s counsel, Cabot has “more than 1200 clients” and “actively solicits accounts in Florida and throughout the United States.”204 The Complaint does not explain why plaintiff sued Cabot in Palm Beach County rather than his own unnamed county in Florida or in Massachusetts where the company is based.

Dietary Supplements—Greenfield v. Rexall Sundown, Inc.,205 involves allegations that the defendant, a health products company located in Palm Beach County, engaged in deceptive trade practices in connection with the marketing of a “dietary supplement” called Cellasene that the company allegedly claimed would eliminate cellulite.206 According to the Amended Complaint, “Rexall has generated over $60 million in Cellasene sales with an annual projection of $300 million in sales.”207 Rexall’s own advertisements purport that “hundreds of thousands of women across the country are now enjoying the benefits of Cellasene....”208 The case was originally brought by one Palm Beach County resident on behalf of all consumers throughout the United States who have purchased the product. It was later expanded twice, and in March 2001, plaintiffs filed a “Consolidated Complaint,” signed by ten law firms (none of which lists a Palm Beach County address and only one of which is located in Florida).209 The Consolidated Complaint drops the sole Palm Beach County resident and lists several new plaintiffs. All told, there are now six named plaintiffs in the case, none of whom is a resident of Palm Beach County and four of whom live outside Florida.210

Although the named plaintiffs hail from South Carolina, New Jersey, and Pennsylvania, and the Complaint alleges that Rexall has sold this product all over the country, plaintiffs’ counsel are bringing this nationwide class action exclusively under Florida’s deceptive trade practices law. “Since all of Rexall’s sales of Cellasene as well as the Company’s marketing of it have their origin in Florida, where Rexall is domiciled,” the Complaint posits, “the [Florida Deceptive and Unfair Trade Practices Act] is applicable to all members of the Class including those residing outside Florida.”211

Once again in this case, a locally elected court is being asked to issue a ruling under one state’s laws on a serious issue—appropriate marketing of health supplements—that could affect millions of consumers throughout out the country—and could effectively impose new standards on health products companies that offer dietary supplements. Moreover, plaintiffs’ counsel seek to certify this case even though they themselves allege that the practices they are challenging are under investigation both by the Federal Trade Commission and the Florida state attorney general’s office.212 The FTC filed a lawsuit in U.S. District Court in Florida alleging that the company made false and unsubstantiated claims regarding the effectiveness of Cellasene in cellulite reduction.213 That case is currently pending in the U.S. District Court for the Southern District of Florida.

Health Insurance—Beer v. United HealthCare, Inc.214 is one of several lawsuits that have been brought in recent years against health insurers on behalf of patients and doctors, alleging that these companies engage in numerous cost-cutting practices that amount to breach of contract, including denying claims on the ground that various procedures prescribed by doctors are not “medical[ly] necess[ary].”215 The Complaint seeks to certify two classes—one on behalf of healthcare providers who have contracts with United (“Provider Class”) and another on behalf of consumers who are insured by United (“Subscriber Class”). According to plaintiffs’ counsel, there are more than “320,000 physicians and 3,500 hospitals” that qualify for membership in the proposed Provider Class, and “millions” of members in the proposed Subscriber Class.216 Clearly, the overwhelming majority of these millions of proposed class members have virtually no relationship with Palm Beach County.

United is a Delaware corporation with its principal place of business in Minnesota,217 that “operates in all 50 states, the District of Columbia, Puerto Rico and internationally.”218 The Complaint alleges that “United’s products and services. . . are provided to more than 9 million persons.”219 Plaintiffs’ counsel further allege that United holds “a majority ownership interest in health plans operating in approximately 40 markets nationwide and in Puerto Rico” and quote United’s CEO, stating that the company serves “9 million individuals.”220 Independent research confirms that United has approximately 8.6 million members in the United States,221 including 107,000 (1.2 percent) in Palm Beach County.222

While United does have a wholly owned subsidiary in Florida, which is also named as a defendant (almost certainly in order to ensure that the case cannot be removed to federal court), that company operates out of Orlando, Florida—and not Palm Beach County.223 Moreover, that in-state defendant apparently had no contract or contractual relationship with the millions of consumers outside Florida who subscribe to United’s health plans, and while plaintiffs define their class to include all providers and subscribers who have entered into contracts “with a subsidiary of United to provide health coverage,”224 the only subsidiary they sue is the one whose citizenship aids their efforts to remain in state court.

Despite the fact that plaintiffs’ counsel seek to represent subscribers and providers all over the country, they give short shift to any discussion of how various states laws would apply to their claims or prohibit the alleged conduct. For example, the Complaint simply alleges that “defendants have uniformly breached or caused the breach of the Florida Administrative Code, Chapter 627 and other similar statutes enacted by other states” and that plaintiffs have “a claim sounding in common law for money had and received, now recognized by Florida case law as an action for restitution to prevent unjust enrichment, as well as in other states wherein United and/or its subsidiaries do business.”225

Claims Processing—In Kantor v. Vivra Specialty Partners, Inc.,226 three medical professionals (two of whom are residents of Palm Beach County) are suing Vivra Specialty Partners (“VSP”), a claims processor incorporated in Nevada and based in California for breach of contract. The Complaint seeks to certify a nationwide class consisting of all medical professionals who are parties to health insurance contracts under which VSP is responsible for payment of fees, and who submitted claims that were either paid late or not paid at all.227 According to the Complaint, VSP is under contract to provide claims processing to “a substantial number of the country’s largest HMOs and other insurers . . . including without limitation Health Options, MetraHealth, United Health Care, Blue Cross/Blue Shield, PCA Health Plans, and others.”228 Other than alleging that “VSP does substantial business within the state of Florida and particularly within Palm Beach County,”229 plaintiffs do not explain why they have chosen a Palm Beach County court as a venue for their nationwide claims.

Viatical Settlements—Five of the Palm Beach County class actions involve allegations of deception with regard to the marketing of “viatical settlements,” investment contracts in which the investor buys an interest in the life insurance policy of a terminally ill person, typically an AIDS patient.230 Plaintiffs in the five nearly identical lawsuits, all brought by the same group of lawyers, allege that the defendants (only one of which is headquartered in Palm Beach County) brokered or sold viatical settlements, and that the companies misled them by concealing the fact that new AIDS treatment are substantially extending the life expectancies of AIDS patients. The complaints thus seek damages or rescission of the contracts “on behalf of all persons and entities who purchased viatical settlements from Defendants between July 1995 through the date of certification of the class.”231

One of the law firms listed as counsel for plaintiffs in the Thum, Schwartz, and Chancellor cases, Investors’ Law Center in Palm Beach, Florida, is also listed as a named plaintiff in the Schachter case, because it allegedly invested in viatical settlements itself in 1996.232 According to the firm’s website, Investors’ Law Center is a class action plaintiffs’ firm that specializes in bringing class action law suits on behalf of investors. It is unclear whether the firm purchased a viatical settlement as a financial investment—or as a litigation investment.

While the Chancellor complaint does not provide an estimate for the size of the proposed class, 233 the nearly identical Schachter complaint alleges that there are more than 1,000 putative class members who purchased viatical settlements through the named defendant in that case—

Mutual Benefits Corporation—and that these individuals reside throughout the United States.234 Similarly, Mutual Benefits’ website states that the company has “worked closely with more than 18,500 satisfied purchasers of policies and more than 11,000 viators throughout the Unites States.235 Notably, although plaintiffs’ counsel in these cases are suing nationwide businesses “on behalf of all persons and entities” who purchased the investments at issue, they seek to resolve all the claims of this proposed nationwide class under two Florida-specific statutes which prohibit: (1) untrue statements and omissions in connection with offer or sale of investment; and (2) misleading advertisements.236

Bad Trades—Handler v. Florida Marlins Baseball, Ltd.,237 seeks reimbursement on behalf of all Florida Marlins’ seasons ticket-holders on the ground that the team owner reneged on his promise that he would field a “World Class baseball team.” This case was brought by a Palm Beach County attorney who purchased seasons tickets to the Florida Marlins and was apparently disgusted by the team’s performance and by certain management decisions to trade key players and reduce the team’s players. In class actions, attorneys often file cases listing themselves as the plaintiffs until they can find “real” plaintiffs to substitute. That is apparently what happened in this matter. Less than a month after filing the original complaint, the plaintiff/lawyer found two other plaintiffs, who were also Marlins season ticket-holders, and substituted them for himself.238

According to the Amended Complaint, the proposed class consists of “all persons who purchased” season tickets to see the Marlins play at home in 1998.239 The Complaint alleges that there are approximately “ten thousand (10,000) members” in the proposed class “who live throughout South Florida and . . . elsewhere.”240 While this case clearly has a Florida connection, the relation to Palm Beach County is attenuated since the team is headquartered in Dade County and plays its games in Miami. Once again, the question remains: why would a lawyer choose Palm Beach County as the venue to sue a defendant located elsewhere—especially in this case, when the defendant resides in a county that is just a few miles down the road?

Check Cashing Policies—Elliott v. First Union National Bank241 challenges certain procedures instituted by First Union—the nation’s sixth largest bank—for processing checks when a customer’s account contains insufficient funds. Plaintiff alleges that First Union acted improperly under both Florida law and federal law242 by paying checks when plaintiff’s account was overdrawn and then assessing substantial overdraft fees when her account was replenished. Based on these allegations, the Complaint seeks to certify a class consisting of “all persons. . . who presently maintain or have maintained in the past a First Union checking account and who have been improperly assessed overdraft . . . charges or similar fees” because First Union allegedly did not follow its published check posting procedures.243

Plaintiff’s counsel in this matter seek to certify both a multi-state class and a Florida subclass. 244 According to the Complaint, the proposed multi-state class members “are geographically dispersed throughout the United States and within the State of Florida.”245 Indeed, as the Complaint readily admits, First Union operates in “12 states and Washington, DC” and “serves a customer base of more than 12 million.”246 While the Complaint attempts to draw some connection between the controversy and the State of Florida by alleging that First Union has more than “500 banking branches” in the State of Florida and controls more than “17 percent of the retail banking market in Florida,”247 the Complaint offers no real explanation as to why this case was brought in Palm Beach County. The one named plaintiff does not reside there; nor does the complaint allege that she banked at a Palm Beach branch. Rather in seeking to explain why venue is proper, the Complaint simply alleges that “plaintiff resides in Florida, and First Union transacts business in Palm Beach County and maintains numerous places of business in Palm Beach County.248 In fact, while First Union has 51 branches in Palm Beach County, the vast majority of its branches (97.6 percent) are located in other states or other Florida counties. Nonetheless, plaintiff’s counsel seeks not only to bring this multi-state matter in Florida but also to recover on behalf of all putative class members—including those who live outside Florida—under Florida’s banking statute.249 According to the Complaint, First Union has “been unjustly enriched” by virtue of its violation of the Florida law and should compensate all proposed class members for that violation.250

Despite the lack of any obvious connection between the overdraft dispute and Palm Beach County, plaintiff is asking a Palm Beach County court to issue a ruling under Florida law that would condemn First Union’s practices not just in Florida, but in all of the states in which the bank conducts business. Moreover, a ruling by a Palm Beach County court regarding the legality of overdraft fees would inevitably lead to a host of copy-cat class actions against other banks with similar policies—much like the OEM parts cases in Illinois. Thus, plaintiff is essentially asking a local judge in Palm Beach County to set national policy regarding when banks can and cannot process checks and charge overdraft fees.

Employee Investment Plan—Two of the class actions filed in Palm Beach County involved challenges to employee investment plans run by Travelers Group, Inc., and Smith Barney, Inc., both of which are now subsidiaries of Citigroup. The first, Josephs v. Smith Barney, Inc.,251 was brought by two former employees of Smith Barney, Inc., who worked in the investment company’s Broward County, Florida office and allegedly were forced to forfeit their earnings in the company’s Capital Accumulation Plan (“CAP”), described by plaintiffs as a mandatory investment program.252 The two named plaintiffs, who do not allege any connection to Palm Beach County, seek to certify a nationwide class of all current or former employees of Smith Barney and Salomon Bros. (now Salomon Smith Barney) whose income was partially withheld under the CAP program.253 This case is another example of the “copy cat” phenomenon; at the time the case was brought, a virtually identical class action was already pending in the United States District Court for the Middle District of Florida.254

In seeking to justify their odd choice of a forum, plaintiffs’ counsel allege that SSB has 40 Florida branches, three of which are located in Palm Beach County.255 On that basis alone, the Complaint alleges that “Palm Beach County is the most appropriate forum for this action.”256 This conclusion is not supported by other allegations in the Complaint, indicating that the challenged practice has occurred throughout the United States and has no particular relationship to Florida or Palm Beach County. For example, the Complaint alleges that Smith Barney “has done business through approximately 450 offices in the United States and . . . has employed approximately 28,000 individuals.”257 The Complaint also alleges that Salomon Smith Barney has 35,000 employees,258 and that there are currently “37 to 40 million shares of the Company stock owned by employees [that] are subject to forfeiture under CAP.”259

* * * 

Virtually every sector of the United States economy is on trial in Madison County, Palm Beach County, and Jefferson County—long-distance carriers, gasoline producers, insurance companies, computer manufacturers and pharmaceutical developers. The locally elected judges in these county courts are being asked to set national polices in areas as diverse as the scope of warranties, land use rights and environmental protection, the propriety of advertising campaigns, bank billing practices, the legality of employee investment plans, automobile insurance practices, viatical settlements, and numerous other broad-ranging issues for 49 other states—and 3,065 counties—in addition to their own. While some of the class actions pending in these jurisdictions may seem trivial (e.g., Blockbuster late fees, the price of Barbie dolls), these cases (particularly if they are decided incorrectly) can have a dramatic impact on commerce by limiting how companies can market and charge for their products. Other class actions turned up in the research could have broad ramifications in a host of industries including cosmetic surgery, automobile insurance, and computers. If a judge in Madison County orders automobile insurance companies to provide only manufacturer parts, to provide broader coverage on all medical claims, and to pay consumers more when their cars are totaled (three issues that are the subject of multiple class actions included in the survey), the price of car insurance could skyrocket and result in more Americans taking the risks of driving uninsured. The resulting question is a simple one: Who should be charged with responsibility for handling such types of large-scale, interstate class actions involving issues with significant national commerce implications—federal judges who are selected by the President and confirmed by the U.S. Senate or state court judges who are elected by a few thousand votes in a rural county election? As the Senate Judiciary Committee has noted, “[c]learly, a system that allows State court judges to dictate national policy from the local courthouse steps is contrary to the intent of the Framers when they crafted our system of federalism.”260

V. CONCLUSION

By assembling another substantial body of data confirming that certain state courts have become “magnets” for multi-state and nationwide class actions, the Manhattan Institute research further demonstrates the need for federal legislation to address current anomalies in the federal diversity jurisdiction statute. As discussed above, these anomalies have resulted in a system under which federal courts have jurisdiction over “slip-and-fall” cases in which a plaintiff steps over state lines, injures his back and seeks $75,000 in lost wages and chiropractic fees; at the same time, however, federal courts are barred from adjudicating most of the multi-state class actions identified in the Manhattan Institute research—controversies that involve widespread commercial practices in insurance, banking, computing and other industries that affect millions of Americans and could have substantial reverberations on the nation’s economy. Instead of being adjudicated in federal courts, many of these interstate class actions are being heard by locally elected county judges, who typically have only scant resources to devote to such complex cases, are often viewed by plaintiffs’ lawyers as willing to “rubber stamp” class certification orders and “coupon” settlements, and are periodically forced to turn to the local bar to fund their efforts at re-election.

Congress is currently considering legislation that would rectify these unintended consequences of federal jurisdictional law by expanding diversity jurisdiction to include more interstate class actions. Such legislation would meet several important objectives. First, it would fulfill the intention of the Framers in establishing diversity jurisdiction—by ensuring that large cases that directly touch large numbers of citizens in all states and that have broad ramifications for interstate commerce can be adjudicated in federal courts. Second, it would eliminate concerns that local prejudices are stacking the deck against out-of-state defendants in many local courts that have become class action “magnets.” Third, it would increase judicial efficiency by enabling federal courts to coordinate a greater percentage of duplicative class actions through multidistrict litigation procedures. Fourth, it would help ensure that one state court cannot trample federalism principles by dictating other states’ policies on issues as varied as insurance, property rights, or even plumbing licenses. And finally, it would provide access to a forum that by its very design has more resources and is less susceptible to political pressures than local county courts. Such a law would ensure that when attorneys seek to make a “federal” case out of a client’s personal disputes with a defendant by bringing a class action on behalf of millions of people living in all 50 states, the parties will have access to a federal court that can provide the constitutional safeguards that the Framers considered necessary for the fair and efficient adjudication of such interstate commercial disputes.

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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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