Day: March 24, 2015

CAFTA Celebrates 10 Years

The Class Action Reform Act (CAFTA) turned ten years old a month ago.  Introduced by Senator Chuck Grassley (R-Iowa) in early 2005, it passed overwhelmingly in both houses of Congress, and was signed into law on February 18, 2005.  This Act reformed two problem areas associated with class action lawsuits.

Review

First, CAFTA loosened diversity jurisdiction for certain class action lawsuits to reduce forum-shopping by plaintiffs.  Federal diversity jurisdiction was expanded to allow out-of-state defendants to remove a class action lawsuit filed in state court to federal court if: (1) at least $5 million aggregate amount-in-controversy, and (2) at least one member of the class is a citizen of a different state than one defendant, or (3) any member of the class is a foreign resident and any defendant is a domestic resident (or vice-versa).    Furthermore neither of the following requirements can apply: (1) 2/3 of the plaintiffs are from the state in which the lawsuit was originally filed, or (2) there are less than 100 plaintiffs in the lawsuit.  The effect of this innovation alleviated the burden for out-of-state defendants from litigating in “magnet states” where courts apply loose class certification standards which make class action lawsuits easier to initiate and settle.

Second, CAFTA changed the way “coupon settlements” are audited and redeined in plaintiffs’ lawyer fees in conjunction with these settlements.  A coupon settlement is when a defendant offers class members coupons or promises for products or services instead of a monetary settlement.   The problem with coupon settlements is that their value could not always be gauged by class members or judges, which led to concerns that the settlement may be of no value to class members.  CAFTA reformed this process by providing that an independent expert may audit coupon settlements prior to judicial approval of the settlement.  The Act also requires greater scrutiny by federal judges of attorney’s fees to determine if they are excessive in a coupon settlement.  The judge can reduce excessive fees.

Looking Forward

The U.S. Chamber of Commerce’s Institute for Legal Reform recently offered a series of proposals to strengthen CAFTA.   They include:

  1. Tying plaintiffs’ attorney fees to actual class member recovery in all class actions. This will protect plaintiffs against excessive fees.
  2. Expand federal jurisdiction to include class actions filed in state court that overlap with federal multidistrict proceedings (MDL proceedings). Federal law allows federal cases involving identical questions of fact pending in separate jurisdictions to be transferred to an MDL proceeding in order to coordinate and consolidate pretrial proceedings. Currently plaintiffs’ attorneys circumvent virtually identical MDL proceedings by keeping class actions in state court.  The Institute for Legal Reform suggests the creation of a mechanism to allow non-diverse state court class action claims to benefit from MDL proceedings similar to how CAFTA eliminated the need for complete diversity in class actions (See 28 U.S.C. 1332(2)(2)(A)-(C)).
  3. Change the standard of review that Federal District Courts use to determine if the $5 million minimum amount in controversy has been met when a party seeks removal of a class action lawsuit from state to federal court. Currently there is a circuit spit as to whether the correct standard of review for the amount in controversy requirement is the “legal certainty” standard or the “preponderance of the evidence” standard.  The Institute for Legal Reform suggests that Congress make it clear that the “preponderance of the evidence” standard was the correct test under CAFTA.
  4. Federal Rule of Civil Procedure 23(f) allows a party to appeal an order granting or denying class-action certification within 14 days after the order was entered. In recent years the federal appellate courts have only granted 1/4 of the petitions seeking interlocutory review.  The Institute for Legal Reform has found that the federal circuits vary widely on the percentage of petitions they grant interlocutory review.  This decline can be devastating to defendants who are often forced to settle after class certification even if the claims against them are meritless.  The Institute for Legal Reform recommends that Congress consider establish a uniform standard for Rule 23(f) or make interlocutory review mandatory.

For a more detailed analysis see the Institute for Legal Reform’s informational paper on the subject.

Right to Work Law in Litigation

On March 10, 2015, the International Association of Machinists Local 1061 and two other unions filed a complaint against the State of Wisconsin alleging that the “Right to Work” bill passed by the legislature (2015 Act 1) constitutes an unconstitutional taking of the plaintiffs’ property which violates Wisconsin Constitution Art. I, § 13. The plaintiffs argue that they have a property interest in their collective bargaining agreement with their private sector employers because they include security clauses (mandatory dues payments) which are a monetary interest. The plaintiffs then argue that 2015 Act 1 deprives them of their property without just compensation by prohibiting unions from charging non-members for its bargaining services which the unions are still obligated to provide. They contend that they are obligated to continue to provide these services to non-members because minority unions (unions that represent less than half of eligible employees) are prohibited under Wis. Stat. § 111.06(1)(e) and because the NLRA § 9 requires representatives designated by a majority of employees in a bargaining unit be the exclusive representative of all of the employees in the unit for collective bargaining purposes. Local 1061 asked the court to find Act 1 unconstitutional and permanently enjoin the implementation and enforcement of the law.

On March 19, Dane County Circuit Court Judge William Foust rejected Local 1061’s request to grant a temporary injunction blocking Act 1 from taking effect. Judge Foust rejected the request because even though there is “some chance that the plaintiffs would succeed on the merits . . . irreparable harm is speculative.” Therefore the law will remain in effect as the case continues.

After Judge Foust’s announcement Attorney General Brad Schimel released a statement that said, “We remain confident the Right-to-Work law ultimately will be upheld as constitutional.”

Wisconsin AFL-CIO President Phil Neuenfeldt issued a statement that said, “Today’s ruling is another injustice for working people. A temporary injunction is intended to halt immediate irreparable harm. Make no mistake, Right to Work will harm all of Wisconsin’s workers by driving down wages and weakening safety standards across all industries and workplaces. Despite this ruling, workers will continue to organize and mobilize, through their unions, to speak out for better wages and workplace conditions for all of Wisconsin’s working people.”

The Wisconsin Department of Justice has 45 days from March 19 to respond to the complaint or file a motion to dismiss the case.

Assembly Passes Bill to Create Procedures to Repeal Invalid Rules

By a partisan 63-36 vote, the Assembly passed AB 80, introduced by Representative Joan Ballweg (R-Markesan), which would establish “expedited” procedures for an agency to repeal a rule that the agency no longer has the authority to promulgate. Such rules can be rendered invalid because of the repeal or amendment of the law that previously authorized its promulgation. The bill as drafted, however, requires the agency to make the determination if a rule in no longer valid.

The process is considered expedited as it circumvents the statutory administrative rulemaking procedures set forth in Chapter 227. Under the bill, the agency submits a repeal petition to the Legislative Council staff. Then, the petition goes to the legislature’s Joint Committee for Review of Administrative Rules (JCRAR) for approval or rejection. If JCRAR approves, the agency may promulgate the proposed repealing rule.

The bill would also require agencies to submit a report to JCRAR each year that identifies rules for the following:

  • For which the authority to promulgate has been eliminated or restricted;
  • That are obsolete or that have been rendered unnecessary; or,
  • That are duplicative of, superseded by, or in conflict with another rule, a state statute, a federal statute or regulation, or a court ruling.

Finally, the bill requires the Department of Administration (DOA) to review new laws and assign the act for review by each agency that DOA determines may be affected by the act. The agencies in turn must determine if the act limits their authority, renders the existing rules invalid, or otherwise affects the agencies rules. The agency review could then start the process for repealing invalid rules.

Bill Eliminates At-will Employment; Requiring Employers Prove Compliance with Seven-Part Termination Test

Democratic legislators are circulating a bill that would generally prohibit an employer, including the state, from discharging an employee unless the employer meets a seven-part test. One element of the test requires the employer prove by clear and convincing evidence that the employee committed a violation of work rules or performance standards that were uniformly enforced and properly noticed. The bill allows the terminated employee to sue the employer and then requires the employer to prove all seven tests were met.

Specifically, the bill considers it an actionable wrongful discharge of an employee (deemed “unfair” under the law) if any of the following applies:

  1. The work rule or performance standard was not made known to the employee prior to the discharge.
  2. The employer failed to enforce the work rule or performance standard in similar situations for a prolonged period.
  3. The employer did not conduct an interview with the employee, or hold a hearing, concerning the violation prior to the discharge, did not conduct that interview or hearing promptly after the violation, or did not provide the employee with a precise description of the conduct constituting the violation.
  4. The employer did not prove by clear and convincing evidence that the employee committed the violation.
  5. The violation is the same as or substantially similar to a violation committed by another employee who was not discharged for committing the same or a substantially similar violation.
  6. Unless the violation is egregious, the employer failed to first apply a less drastic form of discipline for the violation.
  7. The discharge is disproportionate to the gravity of the violation, taking into consideration any mitigating or aggravating circumstances.