The U.S. Court of Appeals for the Second Circuit recently held that a "parens patriae" lawsuit brought by a state Attorney General seeking damages, civil penalties, and injunctive relief was not removable as a "class action" under the federal Class Action Fairness Act ("CAFA"), as such suit was not "filed under" Federal Rule 23 or a "similar" state statute or procedure, as required by CAFA, and declined to address whether the action qualified as a "mass action" under CAFA.
In so ruling, the Court declined to adopt a "claim-by-claim" analysis of the complaint to determine whether any of the claims satisfied CAFA's jurisdictional prerequisites. A copy of the opinion is attached.
Seeking among other things restitution, damages, civil penalties, and equitable and injunctive relief, the Commonwealth of Kentucky, along with certain counties located in Kentucky ("collectively "Plaintiff"), filed suit in state court through Kentucky's Attorney General against a pharmaceutical company ("Company") that manufactures a certain pain-management drug, alleging that Company violated Kentucky common and statutory law through its marketing and sale of the drug.
Specifically, the complaint alleged that Company fraudulently misled health care providers, consumers, and government officials regarding the supposedly addictive nature of the drug, thereby forcing state and local government to spend millions of dollars investigating, prosecuting, and incarcerating individuals involved in criminal activity to support their addiction to the drug.
Company removed the action to federal court, arguing that Plaintiff's claims constituted a putative "class action" removable under the Class Action Fairness Act of 2005 ("CAFA") and that the claims raised federal questions. Following transfer to the Southern District of New York, the lower court granted Plaintiff's motion to remand, concluding that it lacked subject-matter jurisdiction because the suit failed to meet CAFA's jurisdictional requirements.
Company sought leave to appeal the remand. The Second Circuit denied the petition.
As you may recall, CAFA amended the federal diversity statute to confer federal jurisdiction over certain class actions where: (1) the proposed class contains at least 100 members; (2) minimal diversity exists between the parties (that is, where "any member of a class of plaintiffs is a citizen of a State different from any defendant"); and (3) the aggregate amount in controversy exceeds $5,000,000. 28 U.S.C. § 1332(d)(2)-(6). "Class action" is defined as "any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action." 28 U.S.C. § 1332(d)(1)(B).
Federal Rule 23 in turn provides that class actions must meet the requirements of adequacy of representation, numerosity, commonality, and typicality. See Fed. R. Civ. Proc. 23.
CAFA similarly confers federal court jurisdiction over "mass actions," which term specifically excludes class actions under Rule 23 and is defined as "any civil 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 [$75,0000] jurisdictional amount requirement[] . . ." See 28 U.S.C. § 1332(d)(11)(B), (C)(ii).
Declining to address the question whether this action qualified as a "mass action," but noting Company's possible motive for removing the action as a purported "class action" rather than as a "mass action," the Court noted that actions failing to meet the definition of a "class action" under CAFA do not confer federal court jurisdiction regardless whether such actions meet the other traditional prerequisites of numerosity, minimal diversity, and amount in controversy. The court thus focused on whether Plaintiff's complaint was "filed under [federal ] rule 23 . . . . or similar State statute or rule of judicial procedure authorizing an action to be brought . . . as a class action." See 28 U.S.C. § 1332(d)(1)(B).
Taking its lead from recent decisions from numerous sister circuits, and noting that Plaintiff's complaint was not filed under Rule 23, the Second Circuit then considered whether the complaint was filed under a state statute or procedural rule "similar" to rule 23 that authorizes class actions.
Accordingly, pointing out that Plaintiffs were seeking to enforce their various claims under two state statutes, neither of which authorize[d] suits "as a class action" or bore "any resemblance to Rule 23," the Second Circuit concluded that Plaintiff's parens patriae action implicated few if any of the typical class-like procedures, such as the filing by a class representative on behalf of a similarly-situated plaintiffs.
Moreover, the Court found significant the fact that Plaintiff's complaint made no mention of the state law analog to Rule 23, Kentucky Rule of Civil Procedure 23, which specifically provides "a procedure by which a member of a class whose claim is typical of all members of the class can bring an action not only on his own behalf but also on behalf of all others in the class." See West Virginia ex rel. McGraw v. CVS Pharmacy, Inc., 646 F.3d 169, 172, 175-77 (4th Cir. 2011) (ruling that a parens patriae action that was brought by the state under state statutes not similar to Rule 23 was not removable as a "class action" or "mass action" under CAFA).
The Second Circuit, rejecting Company's various assertions, including the argument that the Court should parse the complaint on a claim-by-claim basis, rather than as a whole, ruled that because this action was not "filed under a state rule or statute 'similar' to Rule 23," it did not qualify as a "class action" within the meaning of CAFA. See, e.g., AU Optronics Corp. v. South Carolina, 699 F.3d 385, 390, 393-94 (4th Cir. 2012)(rejecting the claim-by-claim approach within context of "mass actions"); LG Display co. v. Madigan, 665 F.3d 768, 773-74 (7th Cir. 2011)(similarly rejecting claim-by-claim approach, noting that "just because CAFA was meant to expand federal courts' jurisdiction over class actions, it does not follow that federal courts are required to deviate from the "whole complaint" analysis when evaluating whether a State is the real party in interest in a parens patriae case").
Accordingly, having concluded that this parens patriae action was not a "class action" under CAFA, the Second Circuit ruled that the case was properly remanded for resolution under Kentucky law.
Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.
Our updates are available on the internet, in searchable format, at:
http://updates.kw-llp.com
