Class Actions, State Sovereignty, and the Supreme Court

When a class action lawsuit is filed by a state’s attorney-general, can it be removed to a federal court? That’s the question that’s being brought before the U.S. Supreme Court in what some are seeing as a test of the Court’s stance on class actions as a whole.

A bit of background: Mississippi’s attorney general has filed a case against liquid-crystal display makers, alleging price-fixing. The 5th U.S. Circuit Court of Appeals decided in November to agree with several LCD makers that the case belonged not in state courts, but in federal ones, under a 2005 statute known as the Class Action Fairness Act – or CAFA.

There are cries of foul play and suggestions that state sovereignty is being threatened.

CAFA gave federal courts jurisdiction in class actions with large numbers of people involved, and was a big hit with corporations who had argued that class action lawyers abused state court systems and their perceived bias in favor of plaintiffs. Federal courts, on the other hand, might be a bit friendlier to companies. At its time of passing, CAFA included an amendment that excluded class actions filed by state attorneys general - which would allow those cases to remain in-state despite their size – but that amendment was struck down by the Senate over concerns it would simply provide a “back door” for lawsuits with attorneys-general’s names attached to avoid the entire point of CAFA.

And it is that which leads us to the current case. The Mississippi attorney general filed a class action. The 5th Circuit Court adopted a “claim-by-claim” approach, looking not just at those who had brought the case, but also those who would benefit from it. Having decided that Mississippi consumers who had been harmed from price-fixing were significant parties, the Court turned to CAFA – and a diversity requirement that grants large cases that include plaintiffs who are citizens of a different state than any defendant federal removal – and found that it was bound to do so.

Now there are cries of foul play and suggestions that state sovereignty is being threatened.

The 5th Circuit has defended its decision, releasing an opinion which explained that “nothing we have said denies the State of Mississippi the right to process with this case,” but the State disagrees.

“[The 5th Circuit’s ruling] runs counter to the elementary principles of federalism and state sovereignty,” it said in an appeal to the Supreme Court. LCD makers clearly prefer facing federal-level class actions, releasing their own brief which supported the 5th Circuit’s decision and arguing that CAFA mandated the claim-by-claim approach.

And now, the Supreme Court will decide.

Supporters of general attorney-led class actions see a difference between plaintiff-driven lawsuits, and the restitution they seek, and state-led cases, which may have reform of current practices at their heart, and be a form of government enforcement. Critics accuse class actions of being used to force plaintiffs to settle questionable claims, and the Supreme Court has previously made it harder for plaintiffs’ lawyers to bring class actions.

Mississippi’s case is to be heard by the Supreme Court in office October 2013 – June 2014 and is sure to be closely watched by the judiciary, eager to see whether the Supreme Court will be able to balance state sovereignty with federal law and CAFA. This may depend in the end on whether the court sees class actions filed by states as inherently different to those filed by private citizens.