Coordinated State Court Class Actions: The New Paradigm

The Consumer Advocate, Volume 6 Issue 3, May/June

by Thomas R. Grande

Thirty years after adoption of the current modern class action rule, class action practice is now undergoing more change and transition than at any other time. In the 1970s, the increased filing of related cases in multiple federal districts gave rise to the federal judiciary’s attempts to coordinate these actions through the multi-district federal panel. The 1980s saw more filings of nationwide mass tort class actions and consumer class actions. The 1990s saw the rise of settlement-only classes and also saw more filings of nationwide class actions in state courts, which were viewed by some plaintiff’s counsel as more sympathetic than federal courts. The new trend will be the increased use of multiple, individual state class actions – the same case filed against a defendant in each state which is litigated separately in each state.

The trends of the 1990s have resulted in a backslash, one from the plaintiffs’ bar and one from Congress. The plaintiffs’ bar challenge to nationwide settlement class actions for asbestos claims has resulted in two significant United States Supreme Court decisions that have restricted somewhat the use of a nationwide class action on behalf of class members with potentially divergent interests. The congressional reaction has resulted in the consideration and passage of legislation that would severely restrict the use of nation-wide class actions in state courts and liberalize removal and diversity requirements for federal court jurisdiction. At the same time as these significant changes are occurring, more class cases are proceeding to trial than ever before.

The significance of these developments is that the playing field for class actions is changing dramatically. While the current changes may represent only a transition in class action law and the ultimate outcome of congressional attempts to limit state court jurisdiction of nationwide classes remains to be seen, the current trend toward litigation in state courts provides increased opportunities for state practitioners to use class actions as an integral part of their litigation arsenal.

At approximately the same time that the modern class action rule was revamped in the late 1960s to include the above elements, the United State Congress adopted a procedure which was designed to assist in federal court consideration of similar cases which arose in multiple districts – the federal district court Multi-District Panel. From the early 1970s through the present, the Multi-District Panel has been the forum in which massive nationwide class actions have been litigated. However that trend is reversing and the current trend is toward national class actions filed in state courts.

I. Trend Toward State Court Litigation

The Multi-District Panel of the United States District Courts arose at the same time as modern Rule 23 was adopted. As a result of congressional hearings intended to deal with multiple related actions in different judicial districts, a panel was established in the district courts to coordinated the cases. Since 1968 there have been over 40,000 cases transferred to various multi-district panels. Since the early 1970s, The Multi-District Panel has been used by both plaintiffs and defense counsel as the vehicle to litigate – and settle – nationwide class actions. However, in the 1990s this trend changed and an increase in nationwide class action filings in state court has resulted.

Although the trend toward litigation of nationwide class actions in state court can be traced to a variety of factors, the United States Supreme Court decision in Phillips Petroleum Company v. Shutts in 1985 started the trend. Shutts affirmed that it is permissible to bring a nationwide class action in state court where the class includes individuals who have no minimum contacts with the forum, as long as notice and an opportunity to opt out are provided.

In 1996, the trend toward certification of nationwide classes was accelerated by the Supreme court’s decision in Matsushita Electric Industries Company, Ltd. v. Epstein. In that case, the court affirmed that state courts had jurisdiction to settle nationwide class claims, including claims that were under the exclusive jurisdiction of the federal courts. This trend was fueled by the perception of national class counsel that certain state court jurisdictions were more favorable to their claims than federal courts.

The trend that began with Shutts and which was fueled by Epstein has continued in the late 1990s with two Supreme court decisions which dealt with several important class issues – settlement of class actions before certification or even before filing and the appropriateness of mass tort class actions which arise from other than one event of liability. While the rulings n both cases have important application in understanding under what circumstances settlement classes are appropriate, more important for this article are the implications of the cases for state and local practitioners.

II. Amchem and Ortiz

Generally, the battle of class actions are won and lost at the certification state. Certification of the case dramatically improves the possibility of settlement. However, settlement of class cases before certification or even before filing has been a hot topic in class litigation in the1990s. two recent Supreme Court decisions – Amchem and Ortiz – dealt with settlement classes.

Amchem Products v. Georgine, and Ortiz v. Fibreboard Corporation are the most recent pronouncements by the United States Supreme Court concerning class action law. While a complete analysis of these decisions and their effect on the evolving law of class actions is beyond the scope of this article, examination of the Supreme Court statements on the composition of classes, the requirement to avoid conflicts between class members and the assurance of adequate representation underscores and encourages the trend toward state court class actions. Both cases arise out of attempts to resolve in a global fashion the multitude of asbestos filings, which have inundated the federal courts in the last twenty years, and both cases reversed attempts to settle those claims on a class-wide basis.

Amchem affirmed the Third Circuit’s reversal of a comprehensive settlement of present and future asbestos injury claimants. The factual context of the settlement may have driven the Supreme Court to reach its ultimate decision – the case was settled before it was filed and a complaint, answer denying the allegations and a proposed settlement was filed on the same day. In addition, the class counsel who negotiated the complaint exempted from the class, individual and presumably larger settlements. Last, class representatives and class counsel were purporting to represent in the settlement the rights of three divergent interests – present claimants with damages, present claimants with unknown and possibly future damages and future claimants.

Ortiz, which was decided two years later, reversed the Fifth circuit’s affirmance of a settlement that had many of the same problems that the Amchem settlement had. The same plaintiffs’ counsel negotiated the deal, individual clients were given preferential treatment, present and future claimants were included in the settlement and there were the same conflicts as those recognized by the Supreme Court in Amchem.

Ortiz involved the approval of a 23 (b)(1)(B) mandatory “limited fund” settlement, while Amchem involved a Rule 23(b)(3) “opt out” settlement. However, at least one theme ran through both cases which provides a useful lesson – and opportunity – for state and local class practitioners: a court in the final analysis should look to the potential for intra-class conflicts to determine the nature and structure of class litigation.

In Amchem, the court was concerned over the potential for conflicts within many disparate groups within the class-class members who were exposed to different products for different amounts of time over different periods, some with symptoms and some without. The claims also arose under different state laws. These different groups – represented by the same counsel and the same representatives – had inherent conflicts in determining whether or not the settlement was appropriate. The Supreme Court noted that because of these differences and because there were no subclasses “[a] series of statewide ofr more narrowly defined adjudications, either through consolidation under Rule 42 (a) or as class actions under Rule 23, would seem preferable.”

The Ortiz court – in rejecting the adequacy of representation in the context of a limited fund of insurance monies – focused on the conflict between claimants who were exposed before and after 1959, which was the date on which asbestos manufacturer Fibreboard’s insurance policy expired. Because the pre-1959 claims more valuable (based upon the availability of insurance,) “the consequence [is]… disparate interests within the certified class.” The court went on to say that “[w] hile at some point there must be an end to reclassification with separate counsel, these two instances of conflict are well within the requirement of structural protection recognized in Amchem.”

The common thread running through both Amchem and Ortiz with respect to the conflict issue is that courts will more carefully scrutinize larger class cases where disparate elements are not appropriately represented by subclasses, possibly with different class counsel. This trend has been exemplified by approval of nationwide cases that have several subclasses. The increased filings of nationwide class actions in state courts have also exemplified this trend.

III. The New Paradigm

What will happen next in the volatile evolution of class action law that now exists? Will congressional attempts to federalize all class actions succeed? Will the trend toward state court certification of nationwide classes continue?

Interestingly, a major non-class action development may provide the key to the future of class action litigation in the states. The recent state-by-state tobacco cases litigated on behalf of each state in state court quickly brought the tobacco companies to their knees for several reasons, the most important of which was that the tobacco companies had to simultaneously litigate forty separate actions. This trend – individual state court class actions litigated locally in state courts – is the new paradigm of class action law. As courts become more sensitive to the Supreme Court mandates that militate away from massive, multi-interest class actions, it is individual state class actions that may be in the best position to avoid the adequacy and conflict problems inherent in nationwide cases involving disparate elements and interests. These individual class actions may also provide the state and local practitioner the opportunity to litigate important national public policy cases which for the last thirty years have been primarily the province of nationwide class actions.

Posted in Class Action, In The News

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