The Wall Street Journal came out swinging in favor of a Supreme Court decision that could force state-based lawsuits brought by state attorneys general out of their jurisdictions and into federal court despite complaining about federal encroachment on state powers in another Supreme Court case the very same day.
In a November 5 editorial, the WSJ supported an outcome in Mississippi v. AU Optronics that would make it more difficult for states' attorneys general to bring successful lawsuits on behalf of their citizens by forcing state cases into federal court under the Class Action Fairness Act (CAFA), a forum where class actions are increasingly harder to win. The WSJ, clearly a fan of insulating the wealth of large wrongdoer corporations from class action lawsuits, not only disfavors attorneys general filing lawsuits to protect its citizens, but also erroneously called CAFA an “illegal loophole”:
When Congress rewrote the law on class-action lawsuits in 2005, it didn't figure on being thwarted by the nation's top law enforcers. Now the Supreme Court has a chance to close what has become a large and illegal loophole.
The High Court on Wednesday will hear arguments in Mississippi ex rel. Jim Hood, Attorney General vs. AU Optronics. The protagonist is Mississippi AG Jim Hood, who is famous for moonlighting as a job creator for his trial-lawyer donors. The question is whether Mr. Hood's “state” lawsuits are really an attempt to circumvent the 2005 federal Class Action Fairness Act (Cafa).
In 2006 the Justice Department conducted a grand jury probe into alleged price-fixing by makers of liquid crystal display screens (LCDs). Some companies settled with the feds, others refused and weren't charged. The trial bar piled on with 100 or so copycat class actions.
In 2011 Mr. Hood filed his own lawsuit on behalf of his state, municipalities and Mississippians who purchased LCDs. His suit named the same six manufacturers targeted by the private class-action litigation, and 176 of his 206 paragraphs of allegations were verbatim or near-verbatim copies of the private litigation. This was no surprise since one of the two law firms Mr. Hood hired to prosecute his state suit -- Zimmerman Reid -- has also filed private LCD class actions.
This all looks like a run around the 2005 class-action reform. That law allows defendants hit with civil claims by 100 or more persons to seek removal to federal court, where the rules on classes are stricter and defendants can avoid biased state juries.
Mr. Hood also claims that he can bring his suit because he is its only “named plaintiff.” He wants the Justices to ignore that he is asserting claims on behalf of thousands of LCD purchasers, and that Cafa is clearly aimed at any “mass action” that could result in a “monetary” judgment.
The WSJ seems happy to throw the idea of states' rights under the bus, even though in a different November 5 editorial, it lamented “dagger[s] aimed at the heart of federalism,” protesting that "[t]he last century has seen Washington wrest ever more power from the states" and that “Congress needs constitutional guardrails or it will drive the states off the road.” But when corporate wealth is at risk, the WSJ is suddenly terrified at the thought of states handling their state law-based legal issues in their own courts.
At any rate, the WSJ's claim that in passing CAFA, Congress “didn't figure on being thwarted” by states' attorneys general is especially odd given that later in the editorial, it admits that “Congress's reform took special care to preserve state rights.” Indeed, Congress specifically exempted lawsuits that arise exclusively within a given state -- meaning that the harm occurs entirely in one state, and the suit is then filed under that state's law. This is the exact situation in Mississippi v. AU Optronics. For the WSJ to frame this suit as some sort of exploitative “run around” on the part of Mississippi is misleading, and at odds with the legislative history and statutory text of CAFA.
It is not uncommon for attorneys general to bring lawsuits on behalf of its citizens and consumers who have been harmed by large corporations. In fact, Congress explicitly allowed states to bring such claims (known as "parens patriae" lawsuits) in the context of antitrust violations, without the cases being characterized as “class actions.” In its brief, Mississippi argued that Congress could have addressed parens patriae suits when it passed CAFA, but it did not.
As the consumer advocacy organization Public Citizen pointed out in its friend-of-the-court brief for the Supreme Court, “CAFA's supporters unanimously disclaimed any intent to bring parens patriae action within federal jurisdiction”:
By CAFA's express terms, parens patriae actions filed in the name of states by their attorneys general fall outside the scope of CAFA jurisdiction.
CAFA's background and legislative history confirm what its plain language provides: Parens patriae actions are not mass actions. The explanations of the mass action provision in the legislative history states that it is aimed at mass joinder cases in which the multiple named plaintiffs voluntarily seek to have their cases tried together. And in the final debates on CAFA, its proponents expressly stated their intention not to reach parens patriae actions. Congress' words and intentions matched perfectly. CAFA, as the enacting Congress intended, provides no jurisdiction over parens patriae actions brought by state officials.
Reporting on the oral arguments in AU Optronics, Reuters noted that "[l]egal reforms, including the 2005 Class Action Fairness Act, have increasingly shifted class actions to federal court, which is viewed as friendlier to defendants. At the same time, the Supreme Court has tightened up the rules for what class action claims can go forward in federal court." Perhaps this is the reason behind WSJ's abandonment of federalism. The WSJ is more than happy to support states' rights -- unless those states go after corporate offenders.