US Supreme Court Opens Loophole For Potential Influx Of State Court Suits

On January 14, 2014, the United States Supreme Court unanimously reversed the Fifth Circuit and held that the Class Action Fairness Act's ("CAFA") mass action provision did not provide for jurisdiction over a parens patriae suit filed by the attorney general of Mississippi.

This ruling has important consequences for corporations that face class action litigation because it effectively opens up a loophole in CAFA that will allow private class action lawyers to file what are essentially private class actions through state attorneys general and keep those cases in state courts that are viewed as plaintiff-friendly. Indeed, the state attorneys general that most often use the parens patriae device in this manner represent some of the same states whose court systems were subject to the class action abuses that led to CAFA's passage in the first place. Thus, this recent decision is likely to encourage an increase in the filings of such lawsuits, which have already experienced an uptick in recent years particularly in the pharmaceutical and financial industries as well as in the antitrust context.

The Mississippi v. AU Optronics Corp. decision.

The AU Optronics case was filed by the attorney general of Mississippi following the settlement of a private class action alleging essentially identical claims based on the defendants' alleged price fixing conspiracy in the liquid crystal display (LCD) market. The defendants removed the case to federal court arguing that the monetary recovery sought belonged to individual purchasers, not the state, and therefore the parens patriae suit was essentially a "mass action" involving the claims of "100 or more persons" that would be jointly tried. The district court rejected that argument and ordered the case remanded to state court, but the Fifth Circuit reversed. Based on its prior precedent in Louisiana ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418 (5th Cir. 2008), the Fifth Circuit held that the real parties in interest were indeed the individual purchasers that the attorney general sought to represent. Thus, CAFA's "mass action" provision—"a civil action . . . involving the monetary claims of 100 or more persons that is proposed to be tried jointly . . . ," 28 U.S.C. § 1332(d)(11)(B)(i)— applied to the complaint. Mississippi ex rel. Hood v. AU Optronics Corp., 701 F.3d 796, 799-800 (5th Cir. 2012). According to the Fifth Circuit, the claims and damages sought were:

monetary claims; that belonged to more...