Thursday, May 31, 2007

SCOTUS Grants Cert. In Federal Arbitration Act Case

BNA's Supreme Court Today is reporting that on Tuesday the U.S. Supreme Court granted review in Hall Street Associates LLC v. Mattel Inc., 06-989. Here is their summary of the case:

Ruling Below: (9th Cir., 8/1/06, unpublished)

Summary of Ruling Below: Although arbitrator's assessment of merits in this case contains possible errors of law, those errors are not sufficient basis for federal court to overrule arbitration award, and thus, because arbitrator's decision in this case is not "completely irrational," district court is instructed to enforce original arbitration award on remand.

Question(s) Presented: Did Ninth Circuit err when it held, in conflict with several other federal courts of appeals, that Federal Arbitration Act precludes federal court from enforcing parties' clearly expressed agreement providing for more expansive judicial review of arbitration award than narrow standard of review otherwise provided for in FAA?

Wednesday, May 30, 2007

Evidence Rules Committee Approved Proposed New Evidence Rule 502

At its April 12-13, 2007, meeting, the Advisory Committee on Evidence Rules considered public comments on proposed new Evidence Rule 502, which was published for comment in August 2006. The advisory committee approved the proposed new rule, with modifications. The advisory committee will transmit the proposed new rule to the Committee on Rules of Practice and Procedure with a recommendation that it be approved and transmitted to the Judicial Conference for its consideration.

The advisory committee also approved sending a report to Congress, suggesting that it is neither necessary nor desirable to amend the Federal Rules of Evidence to make the confidential marital communications privilege and the adverse spousal privilege inapplicable “in any Federal proceeding in which a spouse is charged with a crime against . . . (1) a child of either spouse; or (2) a child under the custody or control of either spouse,” as required by the Adam Walsh Child Protection and Safety Act of 2006 (Pub. L. No. 109-248).

Finally, the advisory committee also approved proceeding with the restyling of the Federal Rules of Evidence. The advisory committee's report to the Standing Rules Committee can be accessed by clicking on this link,

Thanks to Mark Herrmann of Jones Day for the tip.

Tuesday, May 29, 2007

D. Ore. Rules on "Amount in Controversy" Controversy: No CAFA Jurisdiction When Plainitffs' Claims do not Facially Exceed Five Million Dollars

Per Tate v. U.S. Bank Nat'l Ass'n, Slip Copy, 2007 WL 1170608 (D. Ore. April 17, 2007):

Defendant argues that the Findings and Recommendation [of the magistrate judge] incorrectly treated the amount in controversy as “facially apparent” because the Complaint did not specify a dollar amount for damages, but instead sought “damages, in total less than five million dollars,” as well as attorney fees. Compl. at 9. Relying on a ruling from this court, Lowdermilk v. U.S. Bank Nat'l Assoc., No. 06-592, 2006 WL 4100011 (D.Or. Aug.6, 2006), affd 479 F.3d 994 (9th Cir.2007), the Findings and Recommendation concluded correctly that “the plaintiff's allegation that the ‘aggregate total of the claims [pled] herein do not exceed five million dollars,’ was a specific expression of the amount of damages sought, apparent on the face of the complaint....” Findings and Recommendation at 7. The Ninth Circuit has since recognized that courts need not look beyond the four corners of a Complaint to determine whether the CAFA jurisdictional amount is met when the Complaint “avers damages (less than five million dollars) that do not reach the threshold for federal jurisdiction.” Lowdermilk, 479 F.3d 994, slip op. at 9 (quotations omitted) (“Plaintiff did plead a specific amount in damages, and therefore, the preponderance of the evidence standard does not apply”). Accordingly, this objection is overruled.

Defendant further objects that the Findings and Recommendation erred by failing to consider evidence concerning the estimated worth of plaintiff's claims, which defendant asserts met the burden to establish that the amount in controversy exceeded the jurisdictional threshold. U.S. Bank's Objections at 12-14. Again relying on this court's ruling in Lowdermilk, the Findings and Recommendation recognized correctly that “a plaintiff may evade federal court simply by asking for less than the jurisdictional amount, so long as the plaintiff, should she prevail, isn't legally certain to recover more.” Findings and Recommendation at 8 (citations omitted). This proposition was also affirmed by the Ninth Circuit. Lowdermilk, 479 F.3d 994, slip op. at 11-12 (“[W]here the plaintiff has pled an amount in controversy less than $5,000,000, the party seeking removal must prove with legal certainty that CAFA's jurisdictional amount is met”). Where, as here, there is no evidence of bad faith on the part of plaintiff, defendant “must not only contradict the plaintiff's own assessment of damages, but must overcome the presumption against federal jurisdiction,” by showing that plaintiff is legally certain to recover at least five million dollars. Id., slip op. at 10.

This court has examined defendant's proffered evidence concerning the estimated worth of plaintiff's claims and concludes that defendant failed to establish with legal certainty that the amount in controversy meets the jurisdictional minimum. Although defendant asserted that plaintiff's claim for unpaid overtime was worth more than $11,000,000, this estimate is insufficiently supported to overcome the presumption against federal jurisdiction.

Monday, May 28, 2007

Second Circuit Denies Rehearing for IPO Class Action Certification

BNA's Class Action Litigation reported in Vol. 8, No. 7 (April 13, 2007) on the case In re Initial Public Offering Securities Litigation, --- F.3d ----, 2007 WL 1097892 (2d Cir. Apr. 06, 2007). Below is an excerpt from that decision:

The Plaintiffs-Appellees ("Petitioners") have petitioned for rehearing of our December 5, 2006, decision reversing the District Court's grant of their motion for class certification. See Miles v. Merrill Lynch & Co. (In re Initial Public Offering Securities Litigation), 471 F.3d 24 (2d Cir.2006). The petition asserts three grounds: (1) our initial decision adopted incorrect standards that a district court must apply in determining whether to grant class certification, (2) the decision erred in concluding that the predominance criterion of Rule 23(b)(3) of the Federal Rules of Civil Procedure could not be satisfied with respect to the Petitioners' class, and (3) a remand is appropriate to enable the District Court to reconsider the class certification motion under the standards we set forth. We requested and received a response from the Defendants-Appellants with respect to points (2) and (3).

We see no reason to revisit or revise what we said in our initial decision concerning the standards for class certification, see id. at 32-42. The Petitioners' second and third points require some discussion, which will assume familiarity with our initial decision. The Petitioners contend that the major flaw in our initial decision was the ruling that individual issues with respect to class members' reliance and knowledge precluded a finding that issues common to class members "predominate over any questions affecting only individual members." Fed.R.Civ.P. 23(b)(3).

. . .

The Petitioners, having sought a broad class, are essentially complaining that we failed to narrow their class definition to an extent that might have satisfied Rule 23 requirements. Whatever authority we might have had to undertake that task, we did not think it appropriate to provide legal advice to experienced class action litigators. However, our ruling rejected class certification only of the class as certified by the District Court. Nothing in our decision precludes the Petitioners from returning to the District Court to seek certification of a more modest class, one as to which the Rule 23 criteria might be met, according to the standards we have outlined. District courts have ample discretion to consider (or to decline to consider) a revised class certification motion after an initial denial.

BNA subscribers can read the full report here.

Tuesday, May 22, 2007

Prof. Dodson discusses Bell Atlantic v. Twombly

Prof. Dodson of U. Arkansas discusses the Supreme Court's recent decision in Bell Atlantic v. Twombly at the Civil Procedure Prof Blog at

Monday, May 21, 2007

SCOTUS Issues Opinion in Antitrust Pleadings Case

The Supreme Court has issued an opinion in BELL ATLANTIC CORP. et al. v. TWOMBLY et al., an antitrust pleadings case. Here is the Syllabus:

The 1984 divestiture of the American Telephone & Telegraph Company’s (AT&T) local telephone business left a system of regional service monopolies, sometimes called Incumbent Local Exchange Carriers (ILECs), and a separate long-distance market from which the ILECs were excluded. The Telecommunications Act of 1996 withdrew approval of the ILECs’ monopolies, “fundamentally restructur[ing] local telephone markets” and “subject[ing] [ILECs] to a host of duties intended to facilitate market entry.” AT&T Corp. v. Iowa Utilities Bd., 525 U. S. 366 . It also authorized them to enter the long-distance market. “Central to the [new] scheme [was each ILEC’s] obligation … to share its network with” competitive local exchange carriers (CLECs).” Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U. S. 398 .

Respondents (hereinafter plaintiffs) represent a class of subscribers of local telephone and/or high speed Internet services in this action against petitioner ILECs for claimed violations of §1 of the Sherman Act, which prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations.” The complaint alleges that the ILECs conspired to restrain trade (1) by engaging in parallel conduct in their respective service areas to inhibit the growth of upstart CLECs; and (2) by agreeing to refrain from competing against one another, as indicated by their common failure to pursue attractive business opportunities in contiguous markets and by a statement by one ILEC’s chief executive officer that competing in another ILEC’s territory did not seem right. The District Court dismissed the complaint, concluding that parallel business conduct allegations, taken alone, do not state a claim under §1; plaintiffs must allege additional facts tending to exclude independent self-interested conduct as an explanation for the parallel actions. Reversing, the Second Circuit held that plaintiffs’ parallel conduct allegations were sufficient to withstand a motion to dismiss because the ILECs failed to show that there is no set of facts that would permit plaintiffs to demonstrate that the particular parallelism asserted was the product of collusion rather than coincidence.


1. Stating a §1 claim requires a complaint with enough factual matter (taken as true) to suggest that an agreement was made. An allegation of parallel conduct and a bare assertion of conspiracy will not suffice. Pp. 6–17.

(a) Because §1 prohibits “only restraints effected by a contract, combination, or conspiracy,” Copperweld Corp. v. Independence Tube Corp., 467 U. S. 752 , “[t]he crucial question” is whether the challenged anticompetitive conduct “stem[s] from independent decision or from an agreement,” Theatre Enterprises, Inc. v. Paramount Film Distributing Corp., 346 U. S. 537 . While a showing of parallel “business behavior is admissible circumstantial evidence from which” agreement may be inferred, it falls short of “conclusively establish[ing] agreement or … itself constitut[ing] a Sherman Act offense.” Id., at 540–541. The inadequacy of showing parallel conduct or interdependence, without more, mirrors the behavior’s ambiguity: consistent with conspiracy, but just as much in line with a wide swath of rational and competitive business strategy unilaterally prompted by common perceptions of the market. Thus, this Court has hedged against false inferences from identical behavior at a number of points in the trial sequence, e.g., at the summary judgment stage, see Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U. S. 574 . Pp. 6–7.

(b) This case presents the antecedent question of what a plaintiff must plead in order to state a §1 claim. Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the claim showing that the pleader is entitled to relief,” in order to “give the defendant fair notice of what the … claim is and the grounds upon which it rests,” Conley v. Gibson, 355 U. S. 41 . While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, ibid., a plaintiff’s obligation to provide the “grounds” of his “entitle[ment] to relief” requires more than labels and conclusions, and a formulaic recitation of a cause of action’s elements will not do. Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the complaint’s allegations are true. Applying these general standards to a §1 claim, stating a claim requires a complaint with enough factual matter to suggest an agreement. Asking for plausible grounds does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement. The need at the pleading stage for allegations plausibly suggesting (not merely consistent with) agreement reflects Rule 8(a)(2)’s threshold requirement that the “plain statement” possess enough heft to “sho[w] that the pleader is entitled to relief.” A parallel conduct allegation gets the §1 complaint close to stating a claim, but without further factual enhancement it stops short of the line between possibility and plausibility. The requirement of allegations suggesting an agreement serves the practical purpose of preventing a plaintiff with “ ‘a largely groundless claim’ ” from “ ‘tak[ing] up the time of a number of other people, with the right to do so representing an in terrorem increment of the settlement value.’ ” Dura Pharmaceuticals, Inc. v. Broudo, 544 U. S. 336 . It is one thing to be cautious before dismissing an antitrust complaint in advance of discovery, but quite another to forget that proceeding to antitrust discovery can be expensive. That potential expense is obvious here, where plaintiffs represent a putative class of at least 90 percent of subscribers to local telephone or high-speed Internet service in an action against America’s largest telecommunications firms for unspecified instances of antitrust violations that allegedly occurred over a 7-year period. It is no answer to say that a claim just shy of plausible entitlement can be weeded out early in the discovery process, given the common lament that the success of judicial supervision in checking discovery abuse has been modest. Plaintiffs’ main argument against the plausibility standard at the pleading stage is its ostensible conflict with a literal reading of Conley’s statement construing Rule 8: “a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” 355 U. S., at 45–46. The “no set of facts” language has been questioned, criticized, and explained away long enough by courts and commentators, and is best forgotten as an incomplete, negative gloss on an accepted pleading standard: once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint. Conley described the breadth of opportunity to prove what an adequate complaint claims, not the minimum standard of adequate pleading to govern a complaint’s survival. Pp. 7–17.

2. Under the plausibility standard, plaintiffs’ claim of conspiracy in restraint of trade comes up short. First, the complaint leaves no doubt that plaintiffs rest their §1 claim on descriptions of parallel conduct, not on any independent allegation of actual agreement among the ILECs. The nub of the complaint is the ILECs’ parallel behavior, and its sufficiency turns on the suggestions raised by this conduct when viewed in light of common economic experience. Nothing in the complaint invests either the action or inaction alleged with a plausible conspiracy suggestion. As to the ILECs’ supposed agreement to disobey the 1996 Act and thwart the CLECs’ attempts to compete, the District Court correctly found that nothing in the complaint intimates that resisting the upstarts was anything more than the natural, unilateral reaction of each ILEC intent on preserving its regional dominance. The complaint’s general collusion premise fails to answer the point that there was no need for joint encouragement to resist the 1996 Act, since each ILEC had reason to try and avoid dealing with CLECs and would have tried to keep them out, regardless of the other ILECs’ actions. Plaintiffs’ second conspiracy theory rests on the competitive reticence among the ILECs themselves in the wake of the 1996 Act to enter into their competitors’ territories, leaving the relevant market highly compartmentalized geographically, with minimal competition. This parallel conduct did not suggest conspiracy, not if history teaches anything. Monopoly was the norm in telecommunications, not the exception. Because the ILECs were born in that world, doubtless liked it, and surely knew the adage about him who lives by the sword, a natural explanation for the noncompetition is that the former Government-sanctioned monopolists were sitting tight, expecting their neighbors to do the same. Antitrust conspiracy was not suggested by the facts adduced under either theory of the complaint, which thus fails to state a valid §1 claim. This analysis does not run counter to Swierkiewicz v. Sorema N. A., 534 U. S. 506 , which held that “a complaint in an employment discrimination lawsuit [need] not contain specific facts establishing a prima facie case of discrimination.” Here, the Court is not requiring heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face. Because the plaintiffs here have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed. Pp. 18–24.

425 F. 3d 99, reversed and remanded.

Souter, J., delivered the opinion of the Court, in which Roberts, C. J., and Scalia, Kennedy, Thomas, Breyer, and Alito, JJ., joined. Stevens, J., filed a dissenting opinion, in which Ginsburg, J., joined, except as to Part IV.

Friday, May 18, 2007

Hastings Law Journal Publishes CAFA Essay by Prof. Walker

I've just come across this Essay recently published by the Hastings Law Journal and authorited by Prof. Laurens Walker entitled The Consumer Class Action Bill of Rights: A Policy and Political Mistake, 58 Hastings L.J. 849 (2007) . Here is an excerpt from the Introduction:

The controversial Class Action Fairness Act of 2005 has provoked widespread public discussion, chiefly because of jurisdictional provisions which will likely place the bulk of major class action litigation in federal court. But the rarely discussed Consumer Class Action Bill of Rights, section 3 of the Act, is, I argue, the most significant provision of the new law. The jurisdictional provision of the 2005 Act will have little independent effect, but the Bill of Rights, which invites public participation in class action settlements and regulates some settlement terms, will prove to be a costly policy and political mistake. Moreover, I argue that the effect of that mistake will be exacerbated by the otherwise insignificant jurisdictional provision of the legislation and will enable application of the Bill of Rights provisions to most major class action cases litigated in the United States. This Essay is the first to comprehensively examine the policy and political implications of this legislation.

Thursday, May 17, 2007

Eighth Circuit Upholds District Court’s Denial of “Futile” Amendment to Complaint Under Rule 8

Per McAninch v. Wintermute, 478 F.3d 882 (8th Cir. Mar. 06, 2007):

McAninch moved to file his first amended complaint to assert additional claims and allegations of fact against KBS. The district court, however, found that the “proposed amended complaint,” which added “some 143 pages of allegations and 16 additional claims” against KBS, “compare[d] unfavorably to the petition originally filed,” which was only 9 pages long. The district court found the proposed amended complaint to contain “lengthy, irrelevant, and largely incomprehensible factual allegations, discussions of case law supposedly supporting claims, and argumentative responses directed at defendant's answer to the original petition.” Therefore, the district court determined that McAninch's proposed amendment would be “futile and improper.” In addition, the district court found that the proposed amendment failed to comply with Rule 8 of the Federal Rules of Civil Procedure because “none of the counts alleged contain[ed] a ‘short and plain statement of the claim showing that the pleader is entitled to relief,’ or an adequate summary of the relevant facts supporting plaintiff's conclusory allegations (i.e., claims of fraud, mistake, and misrepresentation).” (Emphasis in original).

A district court should freely give leave to a party to amend its pleadings when justice so requires, Fed.R.Civ.P. 15(a); however, it may properly deny a party's motion to amend its complaint when such amendment would unduly prejudice the non-moving party or would be futile. Kozohorsky v. Harmon, 332 F.3d 1141, 1144 (8th Cir.2003). Based on the district court's reasoning, and considering that the proposed amendment could have “result[ed] in the burdens of additional discovery and delay to the proceedings,” Popp Telcom v. Am. Sharecom, Inc., 210 F.3d 928, 943 (8th Cir.2000), we find that the district court did not abuse its discretion in denying McAninch's motion to amend the complaint.

Wednesday, May 16, 2007

E.D. Va. Finds Good Cause to Extend 120-day Period of FRCP 4(m)

Per U.S. v. Sea Bay Development Corp., Slip Copy, 2007 WL 1378544 (E.D.Va. May 08, 2007):

Williams' Farms' final argument is that Plaintiff's complaint should be dismissed because service of the summons and complaint was not made on it until after the 120 days specified in Federal Rule of Civil Procedure 4(m). Williams' Farms was served ten days after the appropriate time period expired. Plaintiff counters that it made reasonable and diligent efforts to effect service, Williams' Farms was uncooperative and evasive, and that there are mitigating circumstances that support an extension of the 120-day period.

The instant complaint was filed on November 2, 2006. The 120-day time period expired on March 2, 2007. Plaintiff has supplied the declaration of a co-owner of the process server it used to serve Williams' Farms. (United States' Opp'n to the Mot. to Dismiss Filed by Def. Frank T. Williams' Farms of N.C., Inc., Ex. 3). Plaintiff directed that service occur no later than December 28, 2006. ( Id. at ¶ 3). The process server had difficulty in contacting the president of Williams' Farms, but did have at least two telephone conversations with him. ( Id. at ¶ 4). In January 2007, Plaintiff informed the process server that settlement was likely. ( Id.). The process server experienced difficulty in arranging a time and place for service. ( Id. at ¶ 5). Soon afterwards, Plaintiff requested the process server to serve Williams' Farms' designated agent, an attorney in Virginia Beach, Virginia. ( Id.). On February 28, 2007, an employee with the process server attempted to serve the designated agent, but the agent refused process on the grounds that the summons was not specifically address to him. ( Id.). Plaintiff provided a new summons specifically addressed to the designated agent, and the agent was served on March 12, 2007, ten days after the 120-day period. ( Id.).

The standards for proper service as set forth in Federal Rule of Civil Procedure 4 are incorporated into Rule 12(b)(5). 5B Charles Allen Wright & Arthur R. Miller, Federal Practice and Procedure § 1353 (3d ed.2004); see Lilly v. Winter, No. 1:05cv879, 2006 WL 543977, at *1 (E.D.Va. March 3, 2006) (incorporating the Rule 4(m) time limit into a Rule 12(b)(5) analysis). Rule 4(m) states that, “if the plaintiff shows good cause for the failure [to effect service within 120 days after the filing of the complaint], the court shall extend the time for service for an appropriate period.” Fed.R.Civ.P. 4(m). Good cause requires “reasonable and diligent efforts to effect service” within the 120-day limit. Quann v. Whitegate-Edgewater, 112 F.R.D. 649, 661 (D.Md.1986); see also Hammad v. Tate Access Floors, Inc., 31 F.Supp.2d 524, 528 (D.Md.1999). A defendant's evasion of service can constitute good cause. T & S Rentals v. United States, 164 F.R.D. 422, 425 (N.D.W.Va.1996). Attorney inadvertence, however, weighs against a finding of good cause. Id.

The Court finds that good cause for an extension of the time allowed to serve the summons and complaint exists in this case. Plaintiff did delay its attempts to contact Williams' Farms regarding service for over a month after the complaint was filed; however, when Plaintiff began to attempt to serve Williams' Farms, Williams' Farms was not cooperative in Plaintiff's process server's attempts to arrange a time and place for service. Furthermore, when Plaintiff directed that service be made on Williams' Farms' registered agent within the 120-day limit, the registered agent refused service because the summons did not list his name. Rule 4(e)(2) provides that unless otherwise provided, service may be effected “by delivering a copy of the summons and of the complaint ... or by delivering a copy of the summons and of the complaint to an agent authorized by appointment or by law to receive service of process.” Rule 4(a), describing the form of the summons, does not require a registered agent's name to appear. Plaintiff properly attempted to serve Williams' Farms' registered agent within the 120-day period, and that agent's improper refusal of service cannot be attributed to Plaintiff.

Tuesday, May 15, 2007

Fifth Circuit Applies CAFA's Discretionary Jurisdiction Provision and Local Controversy Exception

BNA's U.S. Law Week is reporting on two consolidated cases in the Fifth Circuit in which the court had the opportunity to apply the discretionary jurisdiction provision and the local controversy exception of the Class Action Fairness Act (CAFA). Here is an excerpt from BNA's article:

One class action alleging tort claims on behalf of patients who were hospitalized in New Orleans when Hurricane Katrina struck is heading back to Louisiana court under an exception to removal under the Class Action Fairness Act, but another case is not, under opinions in consolidated appeals issued April 25 by the U.S. Court of Appeals for the Fifth Circuit (Preston v. Tenet Healthsystem Memorial Medical Center Inc., 5th Cir., No. 07-30132, 4/25/07, revised 4/30/07; Weems v. Touro Infirmary, 5th Cir., No. 07-30160, 4/25/07, revised 4/30/07).

. . .

In Preston the court upheld remand to state court under the discretionary jurisdiction provision, 28 U.S.C. § 1332(d)(3), under which a district court "may in the interests of justice and looking at the totality of the circumstances, decline to exercise jurisdiction ... over a class action" if more than one-third (but less than two-thirds) of the proposed class members are residents of the state in which the suit was filed.

In contrast, the court in Weems rejected remand under the local controversy exception, 28 U.S.C. § 132(d)(4)(A), under which a case shall be remanded to state court if more than two-thirds of the class members and at least one significant defendant are residents of the state and the case essentially involves state law.

BNA Subscribers may access the full article by clicking here.

Monday, May 14, 2007

Eighth Circuit Rejects Suit by Class Representative against Class Counsel

BNA is reporting on Koehler v. Brody, 8th Cir., Nos. 06-2357, 06-2746, 3/27/07, in which it rejected a suit by a class representative against the class counsel. Here is an excerpt from the story:

A class representative dissatisfied with a settlement of securities litigation stemming from a bank merger failed to show that the Private Securities Litigation Reform Act provided a cause of action for his claims against class counsel, the U.S. Court of Appeals for the Eighth Circuit ruled March 27.

. . .

Plaintiff J. Michael Koehler was a lead plaintiff and class representative in those cases. Koehler and others objected to a proposed settlement of $490 million in cash. However, the district court approved the settlement as fair and reasonable and the appeals court affirmed the judgment approving the settlement.

Koehler subsequently filed this action against the attorneys who represented his class and against several attorneys who represented two of the other lead plaintiffs, the court explained. He alleged that the attorneys breached their fiduciary duties, violated PSLRA, and engaged in civil conspiracy by settling the class actions without his approval and by misleading the court into approving the settlement, the court said. The district court granted the defendants' motions to dismiss the complaint.

BNA subscribers may access the full article about the case by clicking here.

Friday, May 11, 2007

D.N.J. Bars Plaintiffs From Bringing Subsequent Smaller Class Actions in State Court After Granting Voluntary Dismissal

Per Shappell v. PPL Corp., Slip Copy, 2007 WL 893910 (D.N.J. March 21, 2007):

On March 30, 2006, Plaintiffs, as a class of individuals, filed suit in state court, alleging several state law claims stemming from an environmental spill of fly ash caused by Defendants, which permeated the Delaware River and surrounding areas. Defendants removed the action to this Court under the recently enacted Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1332(d), allowing removal of class actions with minimally diverse classes, when the aggregate amount in controversy exceeds five million dollars. Plaintiffs now seek to voluntarily dismiss all of the class action allegations of their complaint, and request remand of the remaining claims to state court.

As an initial matter, Defendants argue that Plaintiffs improperly employ Federal Rule of Civil Procedure 41(a)(2) for voluntary dismissal of specific claims, when what they in fact seek to do is amend their complaint. Defendants argue that Plaintiffs attempt to strategically alter their complaint, to sever CAFA jurisdiction and thereby avoid having to litigate their claims in federal court. Defendants seek denial of the motion on this basis.

. . .

The Court is concerned that Plaintiffs may attempt, as Defendants argue, to use this voluntary dismissal as a means of “gerrymandering” smaller class sizes in state court, which fall beyond the purview of CAFA. While Defendants are not prejudiced by the timing of the dismissal, they certainly would be prejudiced by having to litigate multiple class actions in state court without the option of removal. Additionally, the Congressional intent behind CAFA would be undermined by such strategic use of the rules. See. e.g., 28 U.S.C. § 1711(b)(2) (stating one of the purposes of CAFA is “[to] restore the intent of the framers of the United States Constitution by providing for federal court consideration of interstate cases of national importance under diversity jurisdiction”). Therefore, the Court grants Plaintiffs' motion to voluntarily dismiss, on the condition that none of the Plaintiffs named within the complaint may file or enter a class action in any court in the United States on the basis of any theory of recovery stemming from the facts stated in the complaint before this Court. See, e.g. In re Phillips Petroleum Sec. Litigation, 109 F.R.D. 602, 609 (D.Del.1986) (granting plaintiff's voluntary dismissal on the condition that he not file a duplicative class action in any court); Goldlawr, Inc. v. Shubert, 32 F.R.D. 467 (S.D.N.Y.1963) (dismissal without prejudice conditioned on plaintiff covenanting not to sue defendants). If any Plaintiff named in the complaint violates this condition, the dismissal granted herein shall be with prejudice as to that Plaintiff. 9 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2366, at p. 316 (2d ed.1994) (citing various cases and noting if a plaintiff “accepts dismissal but does not meet the conditions, the order of dismissal may be made with prejudice”).

Thursday, May 10, 2007

W.D. Wash. Holds CAFA Removal Jurisdiction Remains Valid Once Established, Even if the Amount in Controversy is Later Insufficient

Per Davis v. Homecomings Financial, Slip Copy, 2007 WL 905939 (W.D. Wash. March 22, 2007):

Now that the Court's inquiry is limited to a Washington state class, it appears that the amount is controversy is less than the $5 million necessary for removal under CAFA. Plaintiff argues that the action would not be subject to removal. Although that argument is correct, the action was properly removed because at the time, the amount in controversy exceeded $5 million based on the proposed nationwide class. Because CAFA was enacted so recently, the parties have not cited any cases under that statute analyzing whether jurisdiction is lost if the amount in controversy is reduced after removal. Courts considering the issue under the diversity statute, however, have concluded that “diversity jurisdiction is determined at the time the action commences, and a federal court is not divested of jurisdiction . . . if the amount in controversy subsequently drops below the minimum jurisdictional level.” Hill v. Blind Indus. & Serv. of Md., 179 F.3d 754, 757 (9th Cir.1999). Furthermore, although CAFA does not address this issue, courts “presume that Congress is aware of the legal context in which it is legislating.” Abrego v. Dow Chem. Co., 443 F.3d 676, 683-84 (9th Cir.2006) (citing Cannon v. Univ. of Chicago, 441 U.S. 677, 696-97 (1979) and United States v. LeCoe, 936 F.2d 398, 403 (9th Cir.1991) ( “Congress is, of course, presumed to know existing law pertinent to any new legislation it enacts”)). Despite its presumed knowledge of the diversity laws, there is no indication that Congress intended to alter the established authority regarding subsequent changes to the amount in controversy. Accordingly, the Court continues to have subject matter jurisdiction over this matter even though consideration of a Washington-only class has reduced the amount in controversy.

After the Court issued its order, plaintiff explicitly stated that she was not seeking reconsideration of the Court's holding on its jurisdiction. See Dkt. # 86 (Plaintiff's Motion for Reconsideration stating that she “does not request reconsideration of any other aspect of the Court's order” other than the denial of class certification under Fed.R.Civ.P. 23(b)(3)) (emphasis in original). If plaintiff is seeking reconsideration now, her motion is untimely. The Court's prior order is the law of the case. Because the Court has already held that it continues to have jurisdiction, plaintiff's motion must be denied.

Wednesday, May 09, 2007

Eighth Circuit Holds Order Staying Proceedings Until the Resolution of Foreign Litigation is Not Immediately Appealable Under Colorado River Doctrine

Per Kreditverein der Bank Austria Creditanstalt fur Niederosterreich und Bergenland v. Nejezchleba, 477 F.3d 942 (8th Cir. Mar. 01, 2007):

As a preliminary matter, we must decide whether the district court stayed the proceedings pursuant to the court's inherent powers or abstained under Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), and Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Compare Landis v. N. Am. Co., 299 U.S. 248, 254, 57 S.Ct. 163, 81 L.Ed. 153 (1936) (reasoning “the power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants”), with Mountain Pure, LLC v. Turner Holdings, LLC, 439 F.3d 920, 926-27 (8th Cir.2006) (discussing the propriety of abstention pursuant to Colorado River and Moses H. Cone ). The line dividing a stay pending resolution of an issue by another court and abstention under Colorado River and Moses H. Cone is not clear. See 15A Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 3914.13 (2d ed.1992). The distinction is important because a stay pursuant to the court's inherent powers is typically an order that is not immediately appealable under § 1291. See Moses H. Cone, 460 U.S. at 10 n. 11, 103 S.Ct. 927; Boushel v. Toro Co., 985 F.2d 406, 408 (8th Cir.1993). In contrast, abstention under Colorado River and Moses H. Cone is usually an immediately appealable order. See Wolfson v. Mut. Benefit Life Ins. Co., 51 F.3d 141, 144 (8th Cir.1995), abrogated on other grounds by Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 711, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996), as recognized in In re Otter Tail Power Co., 116 F.3d 1207, 1215 n. 7 (8th Cir.1997).

Here, the district court ordered the proceedings stayed pending the determination of damages by the Austrian courts. The district court neither cited nor conducted an analysis under Colorado River or Moses H. Cone. Neither of these facts is controlling though because finality is determined by looking at the substance of what the district court intended. See Lunde v. Helms, 898 F.2d 1343, 1345 (8th Cir.1990) (per curiam).

The only time that an order granting a stay will be considered a final order is if [the stay] is tantamount to a dismissal and [the stay] effectively ends the litigation.” Boushel, 985 F.2d at 408 (citing Moses H. Cone, 460 U.S. at 10, 103 S.Ct. 927); Lunde, 898 F.2d at 1345 (“ ‘When a stay amounts to a dismissal of the underlying suit, however, an appellate court may review it.’ ” (quoting Cheyney State Coll. Faculty v. Hufstedler, 703 F.2d 732, 735 (3d Cir.1983))). Specifically, a stay is immediately appealable if the district court proceedings were stayed to allow pending parallel proceedings, which involve the same parties litigating the same claims and issues, to adjudicate the claims and issues, and the judgment of the parallel proceedings will be given res judicata effect. See In re Kozeny, 236 F.3d 615, 618 (10th Cir.2000) (per curiam) (addressing an appeal of a stay pending international proceedings); Michelson v. Citicorp Nat'l Servs., Inc., 138 F.3d 508, 515 (3d Cir.1998); see also Moses H. Cone, 460 U.S. at 10 n. 11, 103 S.Ct. 927 (stating a stay is immediately appealable if “the object of the stay is to require all or an essential part of the federal suit to be litigated in [another] forum” or “when the sole purpose and effect of the stay are precisely to surrender jurisdiction of a federal suit to [another] court”).Here, the outcome of the Austrian litigation will affect only a small portion of the district court proceedings. Cf. Michelson, 138 F.3d at 516. Although the parties have been and will continue to litigate in Austria, the claims and issues litigated in Austrian courts are not all or essentially all of the claims and issues to be adjudicated in the district court proceedings. . . . The district court's stay order is not immediately appealable under Colorado River and Moses H. Cone.

Tuesday, May 08, 2007

E.D.La. Finds that Plaintiffs Cannot Meet Burden of Proving "Local Controversy" Exception to CAFA

Per Caruso v. Allstate Ins. Co., 469 F. Supp. 2d 364 (E.D. La. Jan. 8, 2007):

Plaintiffs . . . contend that this case should be remanded to state court under CAFA's so-called “local-controversy exception.” This provision requires federal courts to decline jurisdiction when the case satisfies four requirements: (1) more than two-thirds of the class members are citizens of the original forum; (2) at least one defendant from whom “significant relief” is sought and whose conduct is a “significant basis” for the claims is a citizen of the original forum; (3) the “principal injuries resulting from the alleged conduct or any related conduct of each defendant” occurred in the original forum; and (4) in the three-year period preceding the filing of the class action, no other class action has been filed “asserting the same or similar factual allegations against any of the defendants” on behalf of any person. 28 U.S.C. § 1332(d)(4)(A). No party disputes that the third prong is satisfied here. Defendants, however, contend that plaintiff's proposed class action does not meet the first, second, and fourth prongs. As an initial matter, the Fifth Circuit recently held that CAFA places the burden of proof on plaintiffs to show that the “local-controversy” exception applies. See Frazier v. Pioneer Americas LLC, 455 F.3d 542, 546 (5th Cir.2006).

[T]he Court finds that the description of the proposed class is sufficient to establish that more than two-thirds of the proposed class are Louisiana citizens. . . .

Because the purported class includes all Louisiana Citizens policyholders who suffered a total loss of their property, in whole or in part, as a result of Hurricane Katrina's winds, the Court finds that Louisiana Citizens is a “significant defendant” as that term is contemplated by CAFA. Construing the statute in any other manner would be inconsistent with the plain, unambiguous meaning of its text.

Finally, defendants argue that CAFA's “local-controversy” exception does not apply here because, during the three-year period preceding the filing of this action, both Allstate and State Farm were named defendants in class actions in which similar factual allegations were raised against them. . . [However, two of the plaintiffs had already filed suits against their insurers, who were again named as defendants in the instant suit.] These proposed class actions against two of the named defendants in the present action undoubtedly assert similar factual allegations as those set forth here. Since they were filed during the three-year period before the instant action, their existence is fatal to plaintiffs' argument that this lawsuit falls under CAFA's “local-controversy” exception. The use of the conjunctive “and” in Section 1332(d)(4)(A) makes it clear that all four of its elements must be satisfied for the “local-controversy” exception to apply. Therefore, because plaintiffs cannot carry their burden on the fourth element of the “local-controversy” test, this Court has jurisdiction over this matter under CAFA. The Court need not address defendants' alternative theories for why federal jurisdiction is appropriate in this matter.

Monday, May 07, 2007

Noyes Posts E-Discovery Article on SSRN

Prof. Henry S. Noyes has posted a draft of his article Good Cause Is Bad Medicine For The New E-Discovery Rules, which will be published in volume 21 of the Harvard Journal of Law & Technology. Here is the abstract:

This Article takes a critical look at the e-discovery amendments to Rule 26(b)(2) that provide that electronically stored information that is not reasonably accessible shall be discoverable only if the requesting party can establish good cause. The intent of these amendments was to limit the cost and burden of discovery and to ensure that similarly situated litigants are treated similarly with respect to discovery of electronically stored information. I conclude that the e-discovery amendments to Rule 26(b)(2) will be ineffective because they increase judicial discretion - likely leading to disparate treatment of similarly situated litigants - while providing no new protection against the cost and burden of discovery. First, the courts' persistent reliance on the liberal rules of discovery mantra will not be overcome in the absence of express direction. Second, the good cause standard is so vague that it is both toothless and meaningless. Third, the e-discovery amendments to Rule 26(b)(2) build on the structure and standards of three earlier rounds of discovery amendments. But experience has shown that these earlier amendments were ineffective in reducing the cost and burden of discovery - largely because courts have been unable to resist the siren song of liberal discovery, particularly when faced with applying a toothless, meaningless good cause standard. Finally, review and application of the text of the discovery rules confirms that the amendments are wholly ineffective.

This serial, but ineffective, amendment of the discovery rules has created a great divide between (a) the stated intentions of the Rules Committee in amending the discovery rules, (b) the actual language of the amended discovery rules and (c) the experience of courts and practitioners in resolving discovery disputes under the discovery rules. The rules that establish the scope and limitations of discovery no longer mean what they say. Instead, they mean only what each judge thinks they ought to say or what the judge recalls that the rules used to say. To bridge this divide, I offer an interpretation of the discovery rules that gives meaning to the language of the rules, limits the cost and burden of discovery and is consistent with the Supreme Court's prior (but ignored) interpretation of the good cause standard elsewhere in the discovery rules.

A full text of the article is available at

Friday, May 04, 2007

9thCircuit Affirms that An Action "Commences" for CAFA Purposes When the Initial Complaint Is Filed, Not on the Date of Amendment

Per McAtee v. Capital One, F.S.B., --- F.3d ---, 2007 WL 840370 (9th Cir. Mar. 16, 2007):

[The original plaintiff, Ball, filed a complaint in state court in August 2004 against subsidiaries of Capital One Financial Corporation and twenty John Doe defendants alleging that credit card contract provisions constituted unlawful business practices under California law. In May 2005 the Superior Court for Orange County held that Ball could not be the representative plaintiff because she had not suffered an injury in fact, and McAtee was substituted as lead plaintiff in a second amendment complaint filed June 1, 2005. The defendants removed, allegedly pursuant to the recently-enacted Class Action Fairness Act, which applies to "any civil action commenced on or after February 18, 2005."]

McAtee moved to remand. The federal district court granted the motion, holding that the action had “commenced” within the meaning of CAFA on August 13, 2004, when Ball's original complaint was filed. The defendants filed a petition to appeal under CAFA, Pub.L. No. 109-2, § 5, 119 Stat. 4, 12 (codified at 28 U.S.C. § 1453(c)), which we denied.

After remand, McAtee learned that her credit card contract was with a different subsidiary of Capital One Financial. Her contract was with Capital One Bank rather than Capital One, F.S.B. or Capital One Services. On June 22, 2006, McAtee filed an amended complaint substituting Capital One Bank in place of one of the Doe defendants. McAtee dismissed her claims against the other two named defendants.

Capital One Bank, like the two previous named defendants, removed to federal district court based on the supposed authority of CAFA. McAtee moved to remand. The district court again held that Ball's initial complaint filed on August 13, 2004, commenced McAtee's action, and remanded to state court. We granted Capital One Bank's petition for appeal to this court. We must decide whether substitution of a named defendant for a Doe defendant in a California state court action commences a civil action against the new named defendant within the meaning of CAFA. Looking to California law for the definition of commence, we conclude that it does not. We therefore affirm.


Our decision is controlled by our recent decision in Progressive West v. Preciado, --- F.3d ---- (9th Cir.2007), 2007 WL 725717, at *1. . . . Assuming arguendo that a defendant's counterclaim could serve as a basis for a CAFA-based removal by the plaintiff, we held in Preciado that an amendment to a cross-complaint in California state court (a counterclaim in federal court) does not commence an action under CAFA as of the date of the amendment. 2007 WL 725717, at *3. (We also held, contrary to our arguendo assumption, that CAFA does not depart from the normal rule under 28 U.S.C. § 1446 that a counterclaim does not provide a basis for removal. Id. at *3-4.) . . .

We looked to California state law in Preciado. We noted that California courts have employed the relation back doctrine for only two purposes-for the purpose of applying the statute of limitations, and for the purpose of applying timeliness rules for serving process. Preciado, 2007 WL 725717, at *2-3. So far as we were able to determine, the relation back doctrine has never been used in California for the purpose of determining a statute's effective date. We therefore held that for the purpose of determining CAFA's effective date, an action is commenced under California law when the original complaint in the action is filed, irrespective of any relation back analysis. Id. at *2 (citing Cal.Civ.Proc.Code § 350 (West 2006) (“An action is commenced, within the meaning of this Title, when the complaint is filed.”)). . . . [T]he considerations that have gone into the formulation of the relation back doctrine have relatively little bearing on whether CAFA should apply to a class action filed in state court. In a CAFA case, we need be less concerned about avoiding unfair surprise of a defendant, and more concerned about having a clear and easy-to-follow rule.

Thursday, May 03, 2007

Supreme Court Approves Federal Rules Amendments

The Supreme Court has approved the amendments to the Federal Rules of Civil Procedure, including the complete style revision as well as a set of "style-substance" amendments. Full details are available at The rules will take effect on December 1, 2007 unless Congress intervenes.

Wednesday, May 02, 2007

Professor Marcus Publishes Paper on CAFA's Federalism Implications

Professor David Marcus recently published a paper in the William and Mary Law Review entitled Erie, the Class Action Fairness Act, and Some Federalism Implications of Diversity Jurisdiction. It is available at 48 Wm. & Mary L. Rev. 1247 (March 2007). Here is the Abstract:

The Class Action Fairness Act of 2005 (CAFA) expands diversity jurisdiction to allow most significant class actions based on state law to proceed in federal court. Hoping to limit the application of state law through class actions, CAFA's supporters believe that federal judges harbor a collective animosity toward the large, multistate class actions the statute targets. CAFA has no substantive component, and it does not tighten Rule 23's certification requirements. Nonetheless, if supporters are right about judicial preferences and their likely impact on certification decisions, CAFA will weaken the regulatory reach of state law.

Arguments about diversity jurisdiction and judicial preferences made during CAFA debates bear a number of striking resemblances to arguments made for and against diversity jurisdiction during the decades leading up to Erie Railroad v. Tompkins. Many Progressive Era lawyers believed that, although no positive law instructed them to do so, federal judges shared a set of policy preferences that made them particularly receptive to corporate interests. As an expression of these preferences, the general common law attracted attention for its interference with the application of state law. By destroying the general common law, Erie limited the implications of judicial preferences for the federalism balance of power.

This Article examines the similar justifications given for diversity jurisdiction during the decades leading up to Erie and during the debates over CAFA. It describes a shift in approaches to choice-of-law problems in class actions as evidence of a hostility in federal courts toward the cases that come within CAFA's reach. The Article then uses Erie to criticize CAFA's federalism implications. Erie stands for the proposition that Congress, not judicial preferences unmoored from positive law, should bear responsibility for the displacement of state law. To achieve its intended effect, CAFA will rely on a perceived hostility toward large state law class actions in federal courts rather than a positive instruction from Congress. The statute thus contradicts Erie's message about the proper role federal judges should play in the federalism balance of power.

Tuesday, May 01, 2007

West Publishes New Casebook by Prof. Spencer

Thomson West has just published a new Civil Procedure casebook by Prof. A. Benjamin Spencer entitled Civil Procedure: A Contemporary Approach. The book is the first in West's new Interactive Casebook Series™ and is presented as a combination of a print and electronic book; the electronic book has special features such as extensive hyperlinking to cases, statutes, Web sites, PDF files, and Black's Law Dictionary definitions. Both versions feature a new visual presentation of the material that is designed to be more engaging for students.

Anyone interested in reviewing this new book may do so by visiting Questions or comments may be directed to Prof. Spencer at