**Memo**

**To:** RSC Colleagues

**From:** Steve Chabot, Chairman of the Constitution Subcommittee

**Subject:** Federalism Concerns with Class Action Fairness Act (H.R.
2341)

**Date:** March 11, 2002

**FEDERALISM INTERESTS ARE PROMOTED (NOT HARMED) BY THE PROPOSED CLASS
ACTION LEGISLATION**

**Contrary to the criticisms of Public Citizen and ATLA, the class
action jurisdiction provisions of H.R. 2341 would not diminish state
court authority or otherwise offend basic federalism principles.**

-   H.R. 2341 would not alter state courts' powers to handle class
    litigation as they see fit. The bill simply gives parties the
    ability to bring certain types of interstate class actions in
    federal court or to remove such cases to federal court.

-   Some persons have suggested that when a lawsuit filed in state court
    is removed to federal court, that step somehow deprives the state
    court of its "rights" -- that it prevents the state court in which
    the matter was originally filed from hearing litigation of
    state-created rights of action that presumptively belong in state
    court. But all state law-based actions don't presumptively belong in
    state court. The concept of federal diversity jurisdiction is to
    negate any such presumption. Diversity jurisdiction is a mechanism
    by which state-law based claims may be moved from local courts to
    federal courts, so as to ensure that all parties will be able to
    litigate on a level playing field and that interstate commerce
    interests will be protected.[^1]

-   This concept is not a judicial invention. And it is not something
    that Congress created. Diversity jurisdiction was established by our
    framers in ***Article III of the Constitution.*** The framers
    included the diversity jurisdiction concept in Article III, *inter
    alia,* to make certain that local biases against commercial
    enterprises would not create a climate that would stymie expansion
    of commercial and manufacturing interests throughout the country,
    thereby undermining the forging of a national union.[^2] Article III
    ensures that there will be a fair, uniform, and efficient forum (a
    federal court) for adjudicating interstate commercial disputes, so
    as to create an environment that nurtures commercial expansion.[^3]

-   The expansion of federal diversity jurisdiction over interstate
    class actions envisioned in the legislation is entirely consistent
    with the current concept of such jurisdiction. At present, the
    statutory "gatekeeper" for federal diversity jurisdiction -- 28
    U.S.C. § 1332 -- essentially allows federal courts to hear cases
    that are large (in terms of the "amounts in controversy") and that
    have interstate implications (in terms of involving citizens from
    multiple jurisdictions). By their nature, class actions typically
    fulfill these requirements. Class actions normally involve so many
    people and so many claims that they invariably put huge dollar sums
    into dispute and implicate parties from multiple jurisdictions. Yet,
    because section 1332 was originally enacted before the rise of the
    modern day class action, it did not take account of the unique
    circumstances presented by class actions. As a result, that section
    has served to ***exclude*** class actions from federal courts, while
    inviting into federal courts much smaller single-plaintiff cases
    having few (if any) interstate ramifications. That technical problem
    would be corrected by the legislation.

```{=html}
<!-- -->
```
-   As former Clinton Administration Solicitor General Walter Dellinger
    testified during a July 1999 House Judiciary Committee hearing, if
    Congress were to redraft the federal diversity jurisdiction statute,
    there would be little legitimate debate that interstate class
    actions would most deserve inclusion within the scope of the
    statute. Interstate class actions typically involve more people,
    more money, more interstate comity issues, and more interstate
    commerce ramifications than any other type of case. Such cases
    therefore warrant federal diversity jurisdiction. They should not be
    barred at the federal courthouse door simply because Congress has
    not heretofore undertaken to repair the technical problem in section
    1332 that generally keeps class actions out of federal court, while
    admitting smaller, less significant cases.

**The need for this change has been highlighted in several recent
appellate decisions:**

-   In *Davis v. Cannon Chevrolet-Olds, Inc.,* 1999 U.S. App. LEXIS
    17040 (11th Cir. July 26, 1999), the U.S. Court of Appeals for the
    Eleventh Circuit reluctantly remanded a large interstate class
    action to state court. The court concluded that given the manner in
    which plaintiffs' counsel had craftily pleaded around jurisdictional
    prerequisites, there was no basis for federal diversity jurisdiction
    over the case. In so ruling, however, the appellate court offered
    what it termed an "apologia" for the fact that "\[t\]he traditional
    principles \[regarding class action jurisdiction\] have evolved
    haphazardly and with little reasoning" and "serve no apparent
    policy:"

> We acknowledge that this case and its kin present an anomaly in our
> law. An important historical justification for diversity jurisdiction
> is the reassurance of fairness and competence that a federal court can
> supply to an out-of-state defendant facing suit in state court. \[The
> defendant in this case\] is an out-of-state defendant facing a
> multimillion-dollar judgment . . . in a state court system that has on
> occasion produced gigantic awards against out-of-state corporate
> defendants. One would think that this case is exactly what those who
> espouse the historical justification for section 1332 would have had
> in mind, and that this fact would somehow color the statute's
> interpretation.

-   Judge John Nangle, who chairs the Judicial Panel on Multidistrict
    Litigation, concurred, echoing criticisms of the way in which
    federal diversity jurisdictional requirements are applied to class
    actions:

> The case at hand is but one example of a growing trend in class action
> litigation in this country. Plaintiffs' attorneys are increasingly
> filing nationwide class actions in various state courts, carefully
> crafting language in the petitions or complaints in order to avoid the
> amount in controversy requirement of the federal courts. Existing
> federal precedent . . . mandates that this practice be permitted,
> although most of these cases in actuality will be disposed of through
> "coupon" or "paper" settlements. . . . Concurrently, . . .such
> settlements are virtually always accompanied by munificent grants of
> or requests for attorneys' fees for class counsel. . . . \[T\]his
> judge is of the opinion that the present \[jurisdictional\] case law
> does not accommodate the reality of modern class litigation and
> settlements.

-   Similarly, in an opinion by Judge Anthony Scirica (chairman of the
    Judicial Conference's Standing Committee on Rules and Procedure),
    the U.S. Court of Appeals for the Third Circuit observed that
    although "national (interstate) class actions are the paradigm for
    federal diversity jurisdiction because, in a constitutional sense,
    they implicate interstate commerce, foreclose discrimination by a
    local state, and tend to guard against any bias against interstate
    enterprises, . . . at least under the current jurisdictional
    statutes, such class actions may be beyond the reach of the federal
    courts." *In re Prudential Ins. Co. America Sales Practice Litig.,*
    148 F.3d 283, 305 (3d Cir. 1998).

**The legislation would not "federalize" class actions; it would correct
the current "false federalism" problem.**

Any suggestion that legislation would "federalize" class actions ignores
the current class action landscape. It is the *status quo* that is
***already*** federalizing class actions. What is occurring is "false
federalism" -- one state court telling the other 49 state judiciaries
what their laws should be. When state courts preside over class actions
involving claims of residents of more than one state (as they
increasingly are inclined to do), they end up dictating the
***substantive*** laws of other states, sometimes over the protests of
those other jurisdictions. When that happens, there is little those
other jurisdictions can do, since the judgment of a court in one state
is not reviewable by the state court of another jurisdiction. It is this
improper "federalization" of class actions that the proposed legislation
would correct.

**The jurisdictional provisions would not move virtually all class
action litigation into the federal courts.**

The provisions would simply allow removal of certain interstate class
actions to federal court -- it would not ***require*** removal. If the
state courts of a jurisdiction provide an even-handed forum for
litigating class actions, defendants presumably will not remove new
cases to federal court and will instead allow them to proceed in state
court. That's how the system is supposed to work under the diversity
jurisdiction provisions of Article III -- to provide an alternative
federal forum for litigation if the state courts of a jurisdiction are
inhospitable to out-of-state defendants.

**The suggestion that the bill would infringe upon the traditional
authority of the states to manage their own judicial business
misperceives the nature of most state court class actions.**

In most state law-based class actions, the proposed classes encompass
residents of multiple states. Thus, the trial court -- regardless of
whether it is a state or federal court \-- must interpret and apply the
laws of multiple jurisdictions.

It is far more appropriate for a federal court to interpret the laws of
various states (a task inherent in the constitutional concept of
diversity jurisdiction), as opposed to having one state court dictate to
other states what their laws mean. In short, what business does a state
court judge elected by the several thousand residents of a small county
in Alabama have in telling the state of Massachusetts what its laws
mean? Why should an Alabama state court judge be rendering
interpretations of Massachusetts law that are binding on Massachusetts
residents and that cannot be appealed to or reviewed by Massachusetts
courts? These matters of interstate comity are more appropriately
handled by federal judges appointed by the President and confirmed by
the Senate.

Even stranger is the increasingly frequent phenomenon that in class
actions, one state court resolves the claims of residents of multiple
other states against a defendant that resides in yet another
jurisdiction. Why should a Texas court be resolving the claims of
Wyoming residents against a California corporation? Those are the sorts
of disputes for which federal diversity jurisdiction was designed.

[^1]: *See Pease v. Peck,* 59 U.S. (18 How.) 518, 520 (1856) ("The
    theory upon which jurisdiction is conferred on the court of the
    United States, in controversies between citizens of different
    states, has its foundation in the supposition that, possibly, the
    state tribunal might not be impartial between their own citizens and
    foreigners.")

[^2]: *See* James William Moor & Donald T. Weckstein, *Diversity
    Jurisdiction: Past, Present and Future,* 43 Tex. L. Rev. 1, 16
    (1964). *See also Bank of United States v. Deveaux,* 9 U.S. (5
    Cranch) 61, 87 (1809) (Marshall, C.J.) ("However true the fact may
    be, that tribunals of states will administer justice as impartially
    as those of the nation, to the parties of every description, it is
    not less true that the Constitution itself . . . entertains
    apprehensions of the subject . . ., that it has established national
    tribunals for the decision of controversies between . . . citizens
    of different states.").

[^3]: "No power exercised under the Constitution . . . had greater
    influence in melding these United States into a single nation \[than
    diversity jurisdiction\]; nothing has done more to foster interstate
    commerce and communication and the uninterrupted flow of capital for
    investment into various parts of the Union, and nothing has been so
    potent in sustaining the public credit and the sanctity of private
    contracts." John J. Parker, *The Federal Constitution and Recent
    Attacks Upon It,* 18 A.B.A. J. 433, 437 (1932).