Mississippi v. AU Optronics Corp.
When is a state’s parens patriae action a “mass action” under the Class Action Fairness Act, and therefore removable to federal court?
Over the course of a decade, a group of companies allegedly engaged in a massive conspiracy to fix the price of liquid crystal display (“LCD”) panels. Following criminal convictions and sentences, the State of Mississippi, along with twelve other states, filed a parens patriae action against the companies, seeking damages under state law. The defendant companies removed the action to district court under the Class Action Fairness Act (“CAFA”) of 2005, and the district court remanded the case to state court. On appeal, the Fifth Circuit reversed the lower court’s decision and held that Mississippi’s parens patriae action was a mass action, and therefore removable under CAFA. The Supreme Court will decide whether a state’s parens patriae action (i.e., on behalf of its citizens) constitutes a “mass action” under CAFA, and can therefore be removed to federal court. The Court’s decision will determine the possible forums for state parens patriae actions, and thereby shape states’ decisions to pursue such actions.
Whether a state's parens patriae action is removable as a "mass action" under the Class Action Fairness Act when the state is the sole plaintiff, the claims arise under state law, and the state attorney general possesses statutory and common-law authority to assert all claims in the complaint.
In 2005, Congress passed the Class Action Fairness Act (“CAFA”), vastly expanding federal jurisdiction over class action lawsuits. See Mississippi ex rel. Hood v. AU Optronics Corp., 876 F. Supp. 2d at 766.Ostensibly seeking to reduce bias against foreign defendants in state court, CAFA relaxed requirements for federal jurisdiction in class actions and mass actions, making removal to federal court easier by allowing aggregation of amounts-in-controversy and removing the complete diversity requirement. See id.
Between 1996 and 2006, Respondents AU Optronics Corporation and other manufacturers, marketers, and sellers (the “LCD companies”) of liquid crystal display (“LCD”) panels, allegedly engaged in a massive conspiracy to fix the prices of LCD panels found in a wide array of electronic products. See Mississippi ex rel. Hood v. AU Optronics Corp., 876 F. Supp. 2d 758, 761–62 (S.D. Miss. 2012).The FBI began investigating the conspiracy in 2006 and, in 2012, AU Optronics became the eighth company convicted for crimes associated with the conspiracy; the company was penalized $500 million in criminal fines and several executives were sentenced to prison.
On March 25, 2011, Petitioner State of Mississippi filed a parens patriae action against the LCD companies in state court. See Mississippi ex rel. Hood v. AU Optronics Corp., 876 F. Supp. 2d at 761. Asserting state law claims, Attorney General Jim Hood sought restitution for LCD purchases by Mississippi’s and other states’ citizens, civil penalties, punitive damages, and a permanent injunction prohibiting any noncompetitive action by the companies.See id. at 762. Twelve other states filed parens patriae actions, five of which commenced in state courts.See Brief for Petitioner, State of Mississippi, ex rel. Jim Hood at 6, 8. In each of these cases, the LCD companies removed the action to federal district court, claiming jurisdiction under CAFA.See Mississippi ex rel. Hood v. AU Optronics Corp., 876 F. Supp. 2d at 762. The district court in each case held that CAFA jurisdiction did not apply and remanded the cases to state court. See Brief for Petitioner at 8.
While the Fourth, Seventh, and Ninth Circuits all upheld the district courts’ remand order, the Fifth Circuit held that Mississippi’s parens patriae suit qualified as a “mass action” under its 2008 decision in Louisiana ex rel. Caldwell v. Allstate Insurance Co..See Brief for Petitioner at 9; AU Optronics v. South Carolina, 699 F.3d 385 (4th Cir. 2012); LG Display v. Madigan, 655 F.3d 768 (7th Cir. 2011); Washington v. Chimei Innolus Corp., 659 F.3d 842 (9th Cir. 2011); Louisiana ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418 (5th Cir. 2008). On February 19, 2013, Attorney General Hood, as a representative of Mississippi, petitioned for a writ of certiorari.See Petition for Writ of Certiorari. The Supreme Court granted certiorari on May 28, 2013 and will address the circuit split regarding whether parens patriae suits may be removed pursuant to CAFA.
The Court will address whether state parens patriae actions are removable to federal court under CAFA. Mississippi’s supporters argue that allowing removal would harm groups who rely on state attorneys general (“AGs”) to protect them by enforcing state law in state courts. The LCD companies’ supporters argue that prohibiting removal would encourage private plaintiffs’ attorneys to work with AGs to pursue large monetary claims under the parens patriae label.
PROTECTING THE PUBLIC INTEREST
The American Association of Retired Persons (“AARP”) argues that parens patriae actions should not be removable to federal court because doing so will have negative effects on the elderly, who are especially vulnerable to harm from businesses and scam artists. See Brief of Amicus Curiae AARP in Support of Petitioner at 22. According to the AARP, the elderly depend on the strong protection afforded by the state’s attorney general as primary law enforcement officers to protect their “health and safety.” Id. In support of this, AARP contends that attorneys general (“AGs”) are able to prevent threatening business practices that impact older people’s homes, income, and assets. See id. at 26. For example, AARP asserts that AGs have been protecting the elderly’s homes by overseeing abusive mortgage lending practices directed towards the elderly. See id. AARP argues that the elderly rely on AGs for investment protection, including the sale of risky variable annuities and unsuitable life insurances. See id. at 29.
Furthermore, AARP argues that AGs have made significant changes and improvements in nursing facilities and home health care. See Brief of AARP at 23. These improvements, AARP claims, are the result of states prioritizing the public’s interest in safe health care over individuals’ interests in obtaining monetary damages. See id. at 24. AARP further argues that private plaintiffs may lack standing to raise a “generalized grievance” or assert claims on behalf of others to achieve similar results. See id. at 25. Therefore, AARP contends that AGs provide vital protection to their residents at the state level, and that allowing removal of parens patriae actions would reduce this protection. See id. at 32.
In support of the LCD companies, the Voice of the Defense Bar (“DRI”) suggests that plaintiffs seek to stay in state court because of favorable rulings and more lenient standards at the state level. See Brief of Amicus Curiae DRI – The Voice of the Defense Bar in Support of Respondents at 4. In fact, DRI contends that private plaintiffs’ lawyers work with AGs to pursue large monetary claims using the parens patriae label. Id. DRI further argues that because these lawyers are working under contingency fee agreements, the lawyers have an incentive to maximize their fees rather than representing the public interest. See id. at 4–5. According to the DRI, such ethical concerns are eliminated when private plaintiffs’ lawyers are not part of a parens patriae action because AGs are compensated on a salary basis and do not retain fees. See id. at 15. As such, DRI claims that AGs do not have a strong incentive to maximize their fees like private attorneys. See id.
The Pharmaceutical Research and Manufacturers of America (“PhRMA”) and the American Bankers Association hold a similar view on this issue. PhRMA and the Bankers Association specifically argue that disallowing removal of a parens patriae action would result in private attorneys gaming the system by shopping around to various state AGs in order to sign up as many states as possible before bringing an action. See Brief for Amici Curiae Pharmaceutical Research and Manufacturers of America and American Bankers Association in Support of Respondents at 8. More importantly, according to PhRMA and the Bankers Association, corporate defendants such as national banks and pharmaceutical companies faced with parens patriae suits that are worth billions of dollars are usually forced to settle before going to trial due to local jury bias. See id. at 10.
To resolve the circuit split regarding removability of parens patriae cases under CAFA, the Court must first determine whether such suits qualify as “mass actions.” The State of Mississippi contends the statutory language and legislative history reveal that CAFA’s “mass action” provision does not apply to parens patriae cases.See Brief for Petitioners at 11. The LCD companies urge the Court to adopt the Fifth Circuit’s claim-by-claim analysis to determine whether a case qualifies as a “mass action.” See Brief for Respondents at 12–13.
Even if the Court determines that parens patriae cases may be removed under CAFA, the Court must also rule on whether parens patriae cases qualify for CAFA’s “general public” exception. Mississippi posits that the vast nature of the price-fixing conspiracy impacted such a large portion of the state’s population that the suit is brought on behalf of the general public and therefore removal is precluded by statute. See Brief for Petitioner at 57–58. The LCD companies counter that CAFA’s general public provision is a clarification rather than an exception and that Mississippi’s claims represent individual, rather than general, interests. See Brief for Respondents at 49, 52.
DO STATE PARENS PATRIAE ACTIONS QUALIFY AS “MASS ACTIONS” UNDER CAFA?
CAFA defines “mass action” as “monetary relief claims of 100 or more persons . . . proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact.”28 U.S.C. §1332(d)(11)(B)(i). Mississippi argues that “persons” and “plaintiffs” are functionally equivalent and therefore federal jurisdiction under CAFA depends on the number of formal parties to the action.See Brief for Petitioners at 17. According to Mississippi, the State, through its Attorney General, is the only plaintiff in this case and therefore CAFA’s threshold requirement of 100 or more persons for removal is not met. See id. at 14. Mississippi claims that it is a real – not merely nominal – party with an interest in its economy distinct from the private interests of harmed consumers. See id. at 39–43. Unlike Wal-Mart Stores, Inc., v. Dukes, where multiple named plaintiffs were joined in a single suit, thereby making the case removable to federal court under CAFA, Mississippi contends that it is not a class representative but, instead, the single party in the suit. See id. at 20.
The LCD companies counter that CAFA’s plain language necessitates a claim-by-claim inquiry into the real “persons” whose interests are at stake in the suit.See Brief for Respondents at 13. In the companies’ view, while other statutes such as the Magnuson Moss Act explicitly bar class actions brought in federal court where “the number of named plaintiffs is less than one hundred,” Congress chose to use “persons” instead of “plaintiffs” in CAFA, thus denoting a conscious choice of words instead of a singular meaning for multiple words.15 USC §2310(d)(3)(C); see Brief for Respondents at 20. The companies further argue that Mississippi seeks damages on behalf of the state and individual consumers, thereby making these individuals real parties to the action. See id. at 33, 35.
Mississippi urges the Court to reject the Fifth Circuit’s claim-by-claim test and, instead, endorse the “whole case” approach espoused by other circuits.See Brief for Petitioner at 49. According to Mississippi, claim-by-claim inquiry would be impractical and unworkable in parens patriae actions.See id. at 22. For example, Mississippi claims that here, where hundreds of thousands of Mississippi residents suffered harm from the price-fixing conspiracy, it would be nearly impossible to identify and add consumers as plaintiffs to the action. See id. at 52.Mississippi further asserts that a claim-by-claim inquiry would render nearly every parens patriae case removable to federal court, as practically any action taken on behalf of a state’s citizens would involve more than 100 people.See id. at 46. Finally, Mississippi posits that a claim-by-claim inquiry would render most parens patriae cases removable, and therefore contravene Congress’s intent.See id. at 35–36. According to Mississippi, CAFA’s legislative history clearly shows that Congress did not intend for CAFA to impact parens patriae suits. See id. at 36.
The LCD companies counter that a claim-by-claim test would not, as Mississippi argues, leave all parens patriae removable to federal court. See Brief for Respondents at 44. According to the companies, injunctive relief actions would not be removable as a CAFA “mass action.” See id. The companies further contend that the Fifth Circuit’s holding actually comports with legislative intent, because CAFA was intended to encourage removal. See id. at 41. Even more, the LCD companies claim that CAFA’s legislative history indicates that Congress intended CAFA to apply to parens patriae cases. See id. at 55. Pointing to a proposed and failed amendment exempting parens patriae actions, the LCD companies conclude that Congress intended for CAFA to apply to parens patriae suits. See id. at 57–58.
DOES THE FIFTH CIRCUIT’S INTERPRETATION OF CAFA INFRINGE ON STATE SOVEREIGNTY?
Mississippi contends that the Fifth Circuit’s reading of CAFA unduly impedes on states’ rights. See Brief for Petitioner at 28. Maintaining that precedents require a narrow reading of removal statutes, Mississippi argues that the Fifth Circuit inappropriately expanded the scope of CAFA and, in doing so, infringed on protected state sovereignty. See id. at 27–28. Mississippi posits that allowing removal of nearly every parens patriae case to federal court would infringe on states’ rights to try cases in their own courts and under their own laws. See id. at 31. Mississippi further contends that if Congress intended CAFA to protrude into states’ rights, the statutory language of the act would strongly convey this exceptional intrusion. See id. Finally, Mississippi argues that Congress offered express assurances that CAFA would not impede the ability of state AGs to bring parens patriae action in state courts. See id. at 35–36.
The LCD companies counter that Congress appropriately acted within its Article III power to regulate actions brought by state plaintiffs and thus did not infringe on states’ rights by allowing removability of parens patriae actions under CAFA. See Brief for Respondents at 52. The companies further contend that Congress considered federalism concerns when drafting CAFA. See id. Rejecting Mississippi’s argument that a claim-by-claim test would infringe on protected state sovereignty, the companies cite multiple actions explicitly excluded from removal, and conclude that these exceptions reveal Congress’s awareness of federalism issues. See id. at 54. The LCD companies argue that because Congress properly exercised its legislative authority and included clear exceptions that protected state sovereignty, parens patriae suits may be removed to federal court without violating states’ rights. See id. at 53-54.
DOES CAFA’S “GENERAL PUBLIC” EXCEPTION APPLY TO PARENS PATRIAE ACTIONS?
Mississippi argues that even if the Court adopts the Fifth Circuit’s claim-by-claim test, CAFA does not apply to the action in question. See Brief for Petitioner at 24. In the State’s view, CAFA explicitly contains an exception to its expansion of federal jurisdiction for actions that concern the “general public.” See id. According to Mississippi, the vast scope of the price-fixing conspiracy and the thousands, if not millions, of Mississippi citizens affected renders this case unique—one that involves the general public and therefore exempted from CAFA. See id. at 57. Mississippi further argues that it seeks restitution for damages to the State’s economy, which concerns all consumers and potential consumers, and therefore satisfies the definition of “general public." See id. at 57–58.
Conversely, the LCD companies contend that the “general public” provision does not apply to the parens patriae suit in question. See Brief for Respondents at 48. They argue that CAFA merely provides a clarification, not an exception, for actions concerning the general public. See id. at 49. The companies add that the “general public” provision does not apply here because the Mississippi seeks damages on behalf of individuals who bought products containing the companies’ LCD panels – not, as Mississippi argues, the “general public.” See id. at 52.
The Supreme Court’s ruling will address the circuit split over whether parens patriae actions are removable under CAFA's "mass action" provision. If the Court adopts the Fifth Circuit’s reading of CAFA, it must also address broader federalism concerns about the appropriate forum for parens patriae actions. The Court must also decide whether CAFA’s “general public” exception applies to parens patriae suits. The Court’s decision will determine the possible forums for state parens patriae actions, and thereby shape states’ decisions to pursue such actions.
- Legal Newsline, Jessica M. Karmasek: Legal reform group, manufacturers urge U.S. SC to uphold ruling over federal jurisdiction (Sep. 16, 2013)
- New York Law Journal, Shepard Goldfein & James Keyte: Removal of Parens Patriae Actions under CAFA (June 11, 2013)
- Department of Justice, Office of Public Affairs: AU Optronics Corporation Executive Convicted for Role in LCD Price-Fixing Conspiracy (Dec. 18, 2012)