A Solution in Search of a ProblemThere’s No Need to Federalize Class Actions

A SOLUTION IN SEARCH OF A PROBLEM:
THERE'S NO NEED TO FEDERALIZE CLASS ACTIONS

The Recorder, June 14, 2000

by Elizabeth J. Cabraser & Scott P. Nealey

America's unique civil justice system results from a carefully crafted constitutional compromise in 1787, which contemplates that federal and state systems will work side by side. Proponents of the "Class Action Fairness Act of 1999" -- S.353, up for a vote in the Senate Judiciary Committee in the next several weeks -- now seek to usurp state power, in a way that the Founders could not have contemplated, by stripping state courts of jurisdiction over class actions. Given our history of cooperative federalism, the arguments advanced in these pages by professor Ronald D. Rotunda ("Stating the Case for Federal Class Actions," May 17) -- that state courts must now cede jurisdiction to protect major corporations from unfairness -- deserve careful scrutiny.

Although removal has been recognized since at least Martin v. Hunter's Lessee (1816), respect for state sovereignty has led Congress to require complete diversity and limit removal to out-of-state defendants. Similarly well-established principles expressed in cases such as Sun Oil v. Wortman (1988) and Matsushita Electrical Industrial Co. v. Epstein (1996), allow state courts to adjudicate national class actions.

Now, despite their earlier claims that federal courts undermine state sovereignty, numerous conservative judicial appointments and several favorable courts of appeal decisions have convinced corporate interests that some federal courts are more friendly to their interests than state tribunals. Transitory and possibly illusory self-interest thus spawns the legislative initiative to remove all class actions to federal court. This runs directly counter to the current federalism trend in the U.S. Supreme Court, and is an insult to federal and state courts alike.

At present federal and state courts share the task of adjudicating class actions. While an enabling statute promoting coordination between federal and state courts, when related actions are pending in multiple forums, would be useful to our system of cooperative federalism, the current proposed legislation offers no such practical solutions. Indeed, this act signifies no newfound fondness for the federal courts; tellingly, S.353 includes no funding for additional judges or staff to cope with the expanded jurisdiction.

In support of "reform," proponents cite several cases of so-called "class action abuse," seeking to generalize a problem for Congress to remedy. One "example" is Avery v. State Farm Mutual Insurance Co. That this $1.2 billion verdict for breach of contract and consumer fraud has become a poster child for class action "reform" says more about State Farm’s substantial lobbying clout and extensive efforts to seek amnesty through the political process, than about Avery itself, which actually demonstrates that class action litigation can be tried fairly in state courts.

The story of Avery begins with plaintiff Michael Avery insuring his Jeep Cherokee with State Farm and faithfully paying his premiums for six years. Then, Mr. Avery’s wife had an accident, and he made a claim. The standard form policy obligated State Farm to pay for parts of "like kind and quality." Instead, State Farm specified repair with lower quality "imitation" crash parts made in Taiwan.

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