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A Unanimous Decision of the United States Supreme Court Has Broad Implications for Businesses

Ellis Winters

Ellis & Winters

Parens Patriae Actions Are Not Removable Under CAFA: A Unanimous Decision of the United States Supreme Court Has Broad Implications for Businesses

By Nora F. Sullivan

The United States Supreme Court delivered a unanimous win to state attorneys general earlier this year. In January, the Court held in Mississippi ex rel. Hood v. AU Optronics, 134 S. Ct. 736 (2014), that parens patriae suits are not removable to federal court as “mass actions” under the Class Action Fairness Act of 2005 (“CAFA”). The Court’s ruling means that actions brought by attorneys general to vindicate the interests of a state’s citizens will remain in state courts, notwithstanding the removability of class actions and mass actions. The ruling may also have broader implications that expose businesses to greater damages arising from the same injury.

In Hood, the State of Mississippi sued manufacturers, marketers, sellers, and distributors of liquid crystal display (LCD) panels alleging that they engaged in a price-fixing scheme in violation of Mississippi’s Consumer Protection and Antitrust statutes. The State sought restitution for LCD purchases made by itself and its citizens. The defendants removed the case to federal court as a “mass action” under CAFA, 28 U.S.C. § 1332(d)(11)(B)(i). The district court agreed that the suit qualified as a “mass action,” but remanded the case back to state court under CAFA’s “general public” exception—which excludes claims asserted “on behalf of the general public (and not on behalf of individual claimants or members of a purported class).” § 1332(d)(11)(B)(ii)(III). The Fifth Circuit reversed, holding that the suit qualified as a “mass action” and did not fall within the “general public exception.” The Fifth Circuit’s decision conflicted with rulings from the Fourth, Seventh, and Ninth Circuits, each of which held that parens patriae suits are not “mass actions” under CAFA. The Supreme Court granted certiorari to resolve the conflict and ultimately reversed the Fifth Circuit.

Justice Sotomayor—writing for the unanimous Court—based her analysis on both the text of the statute and the context in which Congress enacted the mass action provision. First, the Court considered whether a parens patriae action is a suit involving “claims of 100 or more persons” under the mass action provision. § 1332(d)(11)(B)(i). The provision provides:

[T]he term mass action means any civil suit (except a [class action]) in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact, except that jurisdiction, shall exist only over those plaintiffs whose claims in a mass action satisfy the [$75,000 amount in controversy] requirements under subsection (a).

The defendants argued that the provision’s emphasis on “claims” required the Court to consider the number of persons with claims at issue and not the number of named plaintiffs. They urged that the plain language of the statute encompasses suits of more than 100 parties in interest, regardless of whether those parties are named or unnamed. The Court flatly rejected this interpretation.

The Court first noted that the statute does not say “100 or more named or unnamed real parties in interest.” Hood, 134 S. Ct. at 742. Had this been Congress’s intent, the Court wrote, Congress could have incorporated language to include both named and unnamed parties in interest. Id. In fact, Congress did just that in defining removable class actions. CAFA defines “class members” for purposes of class action suits as “the persons (named or unnamed) who fall within the definition of the proposed or certified class in a class action.” 28 U.S.C. § 1332(d)(1)(D). The Court determined that, by omitting similar language from the definition of “mass action,” Congress intentionally excluded unnamed persons from consideration.

The Court further interpreted the statutory text to equate “100 or more persons” with the “plaintiffs” referred to in the same provision.  Hood, 134 S. Ct. at 742. According to the Court, Congress made this meaning clear in two ways. First, the use of the terms “persons” and “plaintiffs” tracks use of the same terms in Federal Rule of Civil Procedure 20, which governs the joinder of parties. Rule 20 uses the term “persons” to refer to “individuals who are proposing to join as plaintiffs in a single action.” Second, the Court looked to the mass action provision’s requirement that the “claims of 100 or more persons” be joined “on the ground that the plaintiffs’ claims involve common questions of law or fact.” The Court struggled to envision a case where the claims of certain unnamed individuals would be proposed for trial based on commonality with the claims of a different group of named plaintiffs. “The better understanding,” the Court held, “is that Congress meant for the ‘100 or more persons’ and the proposed ‘plaintiffs’ to be one and the same.” Id.

The defendants’ anticipated this aspect of the Court’s holding and argued that the term “plaintiffs” includes both named and unnamed “real parties in interest.” The Court rejected this argument, too. To interpret “plaintiff’ to include anyone whom a suit may benefit “stretches . . . beyond recognition . . . one of the most commonly understood of legal terms of art.” Id. at 743. Moreover, such an interpretation would create an “administrative nightmare” for courts assessing the requirement that each mass-action plaintiff’s amount in controversy exceeds $75,000. 28 U.S.C. § 1332(d)(11)(B)(i) (“[J]urisdiction shall exist only over those plaintiffs whose claims in a mass action satisfy the jurisdictional amount requirements under subsection (a).”). The Court questioned how a district court would identify all unnamed parties in interest and then ascertain the amount in controversy for each individual claim. Hood, 134 S. Ct. at 743. The Court found it “unlikely” that Congress intended federal district courts to engage in such “unwieldy inquiries.” Id. at 744.

Similarly, the Court found it unlikely that Congress intended district courts to wade into an administrative quagmire when considering requests to transfer mass actions. CAFA permits a mass action to be transferred to another court with the consent of a “majority of plaintiffs in the action.” 28 U.S.C. § 1332(d)(11)(C)(i). Interpreting “plaintiffs” to include unnamed parties in interest would again create an administrative impossibility for purposes of ascertaining each unnamed party’s preferred forum. Hood, 134 S. Ct. at 744.

The Court bolstered its interpretation with an analysis of the context in which Congress enacted the mass action provision. Mass actions function as a “backstop” against class action plaintiffs seeking to avoid CAFA’s relaxed jurisdictional rules. The mass action provision precludes a suit from naming a host of plaintiffs without proceeding as a class. The Court noted, “if Congress had wanted representative actions brought by States as sole plaintiffs to be removable under CAFA on the theory that they are in substance no different from class actions, it would have done so through the class action provision, not the one governing mass actions.” Id. at 744-45.

Finally, the Court rejected the Fifth Circuit’s basis for classifying parens patriae suits as mass actions. The Fifth Circuit purported to apply a background principle that looked at the substance of the action as opposed to labels that the parties attached. See Louisiana ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418, 424 (5th Cir. 2008). The Supreme Court held that doing so in this instance was an error because Congress did not intend for courts to apply a background principle to the mass action analysis. Hood, 134 S. Ct. at 745-76.

The Court declined to weigh in on CAFA’s “general public” exception after determining that parens patriae suits do not meet the basic requirements for mass actions. Id. at 745 n.7.

The Court’s decision has broad potential ramifications for businesses. Most obvious, state attorneys general may now escape federal jurisdiction by filing lawsuits as parens patriae actions. The decision, too, paves the way for amplified pressure by the plaintiffs’ bar on state legislatures to outsource parens patriae suits to “deputized” attorneys general. Perhaps most significantly, though, the Court’s definition of “plaintiff” could permit the double punishment of a corporate defendant. The opinion does nothing to hinder a state attorney general from initiating a parens patriae action after the resolution of a class action. The State argued on brief that the possibility of duplicative punishment goes the merits of the case, not its removability. Although the Justices expressed concern about the possibility during oral argument, they declined to address the issue in their opinion. 

March 24, 2014
Posted in  News