Senate Bill 5 Broad Enough To Apply To Most Wage and Hour Class Actions

The Class Action Fairness Act of 2005, aka the Big Government Federalization of Class Action Litigation Act of 2005, has made it to the floor of the U.S. Senate as Senate Bill S.5. The application of the act is set forth in section 4, which we will quote verbatim at the bottom of this post. We are more than a bit surprised at the breadth of its scope. As currently worded, it could apply to many California wage and hour class actions.

Why are they overhauling the system? Even Democrats disapprove of those coupon settlement shakedowns, where lawyers make big fees as part of coupon settlements that either sell good cases short, or satisfy the extortive demands that come with a frivolous class action. Though relatively few, these cases are the ones that  make the headlines and outrage most sensible people. "That system is broken and it needs fixing," said Senator Tom Carper (D-Del.) "There are too many instances where consumers are getting very little or nothing from their settlements, while companies are not being forced to change the way they do business."

Perhaps so, but restrictions on coupon settlements can be imposed easily without sending every partially diverse large class action to federal court. Wage and hour class actions, for example, are not among the devices which need such fixing. Businesses almost always change their illegal practices after a hit from a meritorious wage and hour class action. Moreover, Plaintiffs retain the bulk of the proceeds from settlements and judgments obtained through these actions, and lawyers for the class are rewarded only if they produce good results for the employees they represent.

But this bill is not about correcting injustice. It is about limiting the exposure of the largest companies who commit the most egregious violations of law. Because the bill only affects claims worth more than $5 million, the smallest, least meritorious cases -- the best candidates for coupon settlements -- are unaffected. In other words, this bill does not come close to doing what it purports to be enacted to do.

In that respect, the bill is a metaphor for the Republicans who seek and support it. The GOP is all for state rights, and minimizing federal interference in state rights, unless the states seek to control their own judicial systems so that they protect ordinary workers and consumers from the abuses of large corporations who finance the campaigns of Republican candidates for office.

Friends of working Americans will continue to fight against this restriction on the aggregation of workers' claims against unscrupulous employers. The best hope for wage and hour practitioners and their thousands of clients is the proposed civil rights/labor amendment to carve out state law civil rights and wage-and-hour cases from the bill. Without this amendment, the removal process in the bill would delay and, in some instances, cause the dismissal of meritorious class action cases. Here in California, one of the best ways to be heard is to contact Senator Dianne Feinstein, one of the bill's supporters among Senate Democrats. Supporting Consumer's Union is another. If you are not in California, you can reach your own Senator by calling the Capitol Switchboard at (202) 224-3121.
____________________________________________

The language of Section 4 of the bill is as follows:

SEC. 4. FEDERAL DISTRICT COURT JURISDICTION FOR INTERSTATE CLASS ACTIONS.

(a) APPLICATION OF FEDERAL DIVERSITY JURISDICTION- Section 1332 is amended--

(1) by redesignating subsection (d) as subsection (e); and

(2) by inserting after subsection (c) the following:

`(d)(1) In this subsection--

`(A) the term `class' means all of the class members in a class action;

`(B) the term `class action' means any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action;

`(C) the term `class certification order' means an order issued by a court approving the treatment of some or all aspects of a civil action as a class action; and

`(D) the term `class members' means the persons (named or unnamed) who fall within the definition of the proposed or certified class in a class action.

`(2) The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which--

`(A) any member of a class of plaintiffs is a citizen of a State different from any defendant;

`(B) any member of a class of plaintiffs is a foreign state or a citizen or subject of a foreign state and any defendant is a citizen of a State; or

`(C) any member of a class of plaintiffs is a citizen of a State and any defendant is a foreign state or a citizen or subject of a foreign state.

`(3) A district court may, in the interests of justice and looking at the totality of the circumstances, decline to exercise jurisdiction under paragraph (2) over a class action in which greater than one-third but less than two-thirds of the members of all proposed plaintiff classes in the aggregate and the primary defendants are citizens of the State in which the action was originally filed based on consideration of--

`(A) whether the claims asserted involve matters of national or interstate interest;

`(B) whether the claims asserted will be governed by laws of the State in which the action was originally filed or by the laws of other States;

`(C) whether the class action has been pleaded in a manner that seeks to avoid Federal jurisdiction;

`(D) whether the action was brought in a forum with a distinct nexus with the class members, the alleged harm, or the defendants;

`(E) whether the number of citizens of the State in which the action was originally filed in all proposed plaintiff classes in the aggregate is substantially larger than the number of citizens from any other State, and the citizenship of the other members of the proposed class is dispersed among a substantial number of States; and

`(F) whether, during the 3-year period preceding the filing of that class action, 1 or more other class actions asserting the same or similar claims on behalf of the same or other persons have been filed.

`(4) A district court shall decline to exercise jurisdiction under paragraph (2)--

`(A)(i) over a class action in which--

`(I) greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed;

`(II) at least 1 defendant is a defendant--

`(aa) from whom significant relief is sought by members of the plaintiff class;

`(bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and

`(cc) who is a citizen of the State in which the action was originally filed; and

`(III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed; and

`(ii) during the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons; or

`(B) two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.

`(5) Paragraphs (2) through (4) shall not apply to any class action in which--

`(A) the primary defendants are States, State officials, or other governmental entities against whom the district court may be foreclosed from ordering relief; or

`(B) the number of members of all proposed plaintiff classes in the aggregate is less than 100.

`(6) In any class action, the claims of the individual class members shall be aggregated to determine whether the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs.

`(7) Citizenship of the members of the proposed plaintiff classes shall be determined for purposes of paragraphs (2) through (6) as of the date of filing of the complaint or amended complaint, or, if the case stated by the initial pleading is not subject to Federal jurisdiction, as of the date of service by plaintiffs of an amended pleading, motion, or other paper, indicating the existence of Federal jurisdiction.

`(8) This subsection shall apply to any class action before or after the entry of a class certification order by the court with respect to that action.

`(9) Paragraph (2) shall not apply to any class action that solely involves a claim--

`(A) concerning a covered security as defined under 16(f)(3) of the Securities Act of 1933 (15 U.S.C. 78p(f)(3)) and section 28(f)(5)(E) of the Securities Exchange Act of 1934 (15 U.S.C. 78bb(f)(5)(E));

`(B) that relates to the internal affairs or governance of a corporation or other form of business enterprise and that arises under or by virtue of the laws of the State in which such corporation or business enterprise is incorporated or organized; or

`(C) that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security (as defined under section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1)) and the regulations issued thereunder).

`(10) For purposes of this subsection and section 1453, an unincorporated association shall be deemed to be a citizen of the State where it has its principal place of business and the State under whose laws it is organized.

`(11)(A) For purposes of this subsection and section 1453, a mass action shall be deemed to be a class action removable under paragraphs (2) through (10) if it otherwise meets the provisions of those paragraphs.

`(B)(i) As used in subparagraph (A), the term `mass action' means any civil action (except a civil action within the scope of section 1711(2)) in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs' claims involve common questions of law or fact, except that jurisdiction shall exist only over those plaintiffs whose claims in a mass action satisfy the jurisdictional amount requirements under subsection (a).

`(ii) As used in subparagraph (A), the term `mass action' shall not include any civil action in which--

`(I) all of the claims in the action arise from an event or occurrence in the State in which the action was filed, and that allegedly resulted in injuries in that State or in States contiguous to that State.

Comments

[AF]

In concrete terms, how will this hurt wage and hour class actions? If it's an FLSA claim, there's federal jurisdiction anyway. If it's a state law claim, there's no diversity. Are there cases involving state wage and hour claims from a number of different states at the same time?

[M Walsh]

In California, this is potentially disastrous for plaintiffs. California law is much more favorable to employees than federal law. Few FLSA cases are filed in California unless the case seeks to include class action status for multi-state workers beyond California's borders.

The diversity provisions in this proposal include many actions in which the defendant employer is a citizen of another state. Many large California employers are incorporated in Delaware and have their headquarters in states other than California. All five class actions with informational websites we have linked to in this weblog involve defendants which are not citizens of California. The defendants are headquartered in Florida, Massachusetts, Florida, Arkansas and Arizona. Cases brought by California employees against any of the five would be diverse under the proposed statute.

How does this hurt class action plaintiffs? In many ways. Among the ways the law will benefit the defendants: first and foremost, cases in state court move much faster. District Courts are already overburdened, understaffed and riddled with judicial vacancies. We have seen judges keep motions under submission for as long as 13 months. Trials are regularly set eighteen months or more after the trial setting conference. And if this law passes, it will get worse.

California law is more favorable to employees with respect to tolling of statutes of limitations, enforcement of arbtration agreements, arbitration of class actions, pre-certification notices, and a broad scope of discovery without arbitrary limits on deposition length, quantities of interrogatories and requests for admissions.

[AF]

I still don't get it. If it's an FLSA claim, isn't there already federal jurisdiction, regardless of the citizenship of the parties? Which means defendants can already get it into federal court if they want?

[M Walsh]

Yes, if brought as an FLSA claim, defendants can get to federal court. Most California wage and hour lawyers forego the FLSA claims because the California Labor Code provides better protection than the FLSA.

[AF]

I see the problem. Even if the entire class is from CA, and every member is employed by the defendant in California, the defendant can still get into federal court if it's a citizen of another state. I agree, that's ridiculous.

[mortgage rates]

[comment spam omitted]

[spammer]

I agree with you the way you view the issue. I remember Jack London once said everything positive has a negative side; everything negative has positive side. It is also interesting to see different viewpoints & learn useful things in the discussion

[prosolution]

Three phrases should be among the most common in our daily usage. They are: Thank you, I am grateful and I appreciate.