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Supreme Court considers whether parens patriae can be removed to federal court

Special breed of mass litigation has become the testing ground for CAFA mandates

In Mississippi ex rel Hood v. AU Optronics, Mississippi Attorney General Jim Hood has sued more than 10 large electronics makers, including divisions of Toshiba Corp., Samsung Group, Hitachi Global and Sharp Corp., accusing them of conspiring to artificially inflate the price of liquid-crystal display (LCD) screens. Hood brought the case under the Mississippi Consumer Protection Act and the Mississippi Antitrust Act on behalf of all citizens of the state of Mississippi harmed by the alleged price-fixing scheme.

Actions brought by state attorneys general on behalf of their state’s citizens are known as parens patriae actions. This special breed of mass litigation has become a testing ground for the outer limits of the Class Action Fairness Act’s (CAFA) mandate that defendants may remove to federal court lawsuits that seek to adjudicate multiple plaintiffs’ claims.

Although Hood’s lawsuit asserted only claims under Mississippi law, the defendants in AU Optronics have fought hard to remove the case to federal court, arguing that they are entitled to avail themselves of the procedural safeguards of the Federal Rules of Civil Procedure when defending such a large case. Hood’s camp in turn has fought hard to keep the case in Mississippi’s state courts, arguing that the case is neither a “mass action” nor a “class action” within the meaning of CAFA because the state of Mississippi, and not the individual citizens who may have paid too much for their flat-screen televisions and computer monitors, is the real plaintiff.

In November 2012, the 5th Circuit ruled that the defendants could remove the case to federal court, writing, “The real parties in interest ... are those more than 100 persons who, by substantive law, possess the right sought to be enforced.”

The ruling conflicts with decisions from the 2nd, 7th and 9th circuits, all of which have found that parens patriae actions are not removable under CAFA. The Supreme Court has granted cert and will decide the issue in its October term. Forty-six state AGs have weighed in on the case, which will have huge ramifications for not only AGs’ roles in litigating claims on behalf of citizens of their states, but also on how corporations defend mass litigation.

Federal Court Fairness

Congress enacted CAFA in 2005 in response to a perception that plaintiffs were abusing the state class action procedures, bringing very large actions in venues where defendants were uncertain about whether they would receive a fair hearing. Among other reforms, CAFA relaxed the standards for allowing defendants to remove class action cases to federal court, establishing that district courts have jurisdiction over any class action with 100 or more members if the aggregate amount of damages in controversy exceeds $5 million, and any member of the plaintiffs’ class is a citizen of a state different from any defendant.

State attorneys general have argued that CAFA’s removal provisions should not apply because their suits are based on state law and only concern damage suffered by the citizens of their state. Defendants are critical of such arguments. They contend that parens patriae actions are functionally the same as class actions, and plaintiffs shouldn’t be able to use the parens patriae vehicle as a loophole to avoid federal court.

Parens patriae actions are identical in many ways to a class action,” says Phillip Stano, a partner at Sutherland Asbill & Brennan. “There can be thousands of class members, massive exposure for the defendants, extensive, costly discovery and often the same plaintiffs’ counsel appearing as ‘special assistant attorneys general.’”

Home Court Advantage

Corporate defendants contend that they face several unacceptable risks litigating these cases in state court. First, distinguishing parens patriae actions from class actions would make it difficult for defendants to achieve finality through settlement.

“If a company settles a class action suit, it wants to do so nationally,” explains David Anthony, a partner at Troutman Sanders. “If plaintiffs are able to avoid federal court by styling their actions as parens patriae cases, it destroys that sense of finality. A company could settle a class action and then turn around and face multiple state AG actions.”

Second, many defendants fear that political motivations at play in state courts may lead to unfair results. For instance, some point out that state AGs may reward political supporters by appointing plaintiffs’ attorneys to pursue potentially lucrative parens patriae claims on the state’s behalf. 

“In many states, both judges and attorneys general are elected,” Stano says. “Corporate defendants worry about the political agendas within the state.”

Finally, out-of-town defendants worry that they run the risk of being treated unfairly by judges and juries who may favor local plaintiffs litigating against foreign corporations.

Last Word

Although defendants fear the potential risks of a ruling in Hood’s favor in AU Optronics, all agree that the Supreme Court had to take on the case.

“The current inconsistency among the courts is untenable,” says Archis Parasharami, a partner at Mayer Brown. “These cases are treated differently depending on where they are filed. The Supreme Court decision will provide guidance to the federal courts about removability.”

Either way it rules, the Supreme Court’s decree will likely be the last word on the topic for quite some time, as Congress is unlikely to weigh in.

“Congress hasn’t been active on any front,” Parasharami says. “This would be a low priority for legislative action.”

 

Adele Nicholas

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