Concerns that businesses were being victimized by abusive lawsuits filed in state courts—in particular, nationwide class actions and mass actions—led Congress to adopt the Class Action Fairness Act (CAFA) in 2005. Congress intended that CAFA ease removal of class and mass actions from state to federal court. The law has had mixed results in that regard, , as plaintiffs’ lawyers have devised a variety of clever ways to evade CAFA and thereby ensure that their nationwide suits can remain in state court. If a recent Oklahoma state-court decision is any indication, however, the plaintiffs’ bar may finally have met its match: the Supreme Court’s January 2014 decision in Daimler AG v. Bauman. That decision imposed strict limitations on a court’s exercise of general jurisdiction over out-of-state defendants. The Oklahoma court invoked Daimler to dismiss hundreds of plaintiffs from a mass action that the U.S. Court of Appeals for the Tenth Circuit already had deemed not removable under CAFA.
The case involved product liability claims by 702 individuals from 26 States, each of whom alleged that she had suffered injuries from pelvic mesh surgical devices manufactured by Ethicon, Inc. (a subsidiary of Johnson & Johnson). CAFA permits removal to federal court of “mass actions” filed by 100 or more plaintiffs raising substantially similar claims. To reduce the risk of removal, the plaintiffs’ lawyers grouped the claims into 11 separate lawsuits, each containing fewer than 100 plaintiffs. Nonetheless, it was obvious that the plaintiffs wanted the cases tried together: they filed the lawsuits in a tiny Oklahoma county with only a single trial judge, thereby ensuring that all 702 claims would be heard by a single judge. They also took steps to prevent removal based on diversity of citizenship: they included at least one New Jersey resident as a plaintiff in each of the 11 lawsuits. Because the defendants have their principal places of business in New Jersey, the inclusion of one New Jersey plaintiff in each case eliminated complete diversity of citizenship and thus precluded removal based on diversity.
The defendants nonetheless tried to remove the 702 claims to federal court under CAFA. The district court remanded virtually all of the claims to state court, and the Tenth Circuit affirmed that remand this past April. Parson v. Johnson & Johnson, 749 F.3d 879 (10th Cir. 2014). Rejecting legal arguments put forward by WLF in its amicus brief, the appeals court reasoned that the 100-plaintiff rule should be strictly enforced and that the plaintiffs had never explicitly proposed to the trial court that the 11 lawsuits be “tried jointly” (a prerequisite for CAFA removal). Nor was the court willing to overlook the New Jersey plaintiffs whose presence defeated diversity jurisdiction. The decision thus provided a clear roadmap for plaintiffs’ attorneys seeking to avoid CAFA mass action removal in future cases.
While the removal proceedings were being litigated, the Supreme Court handed down Daimler. The Court held that Daimler AG, a German car maker that conducts business in the United States primarily through its American subsidiary, was not subject to the general jurisdiction of the California courts. While the result was not surprising, most observers were surprised by the breadth of the Court’s reasoning. That reasoning could sound the death knell for nationwide mass actions of the sort at issue in the Oklahoma litigation. The Court held that no matter how extensive a corporation’s contacts with a State, it is subject to the general jurisdiction of the courts of a State only if its principal place of business is there or if it is incorporated under the laws of that State. Corporations may still, of course, be subject to the “specific jurisdiction” of the courts of a State if the cause of action arose within the State. But Daimler upended the commonly held notion that a plaintiff can choose from among all 50 States in deciding where to sue a large corporation that does business nationwide.
Following their CAFA setback in the Tenth Circuit, the Oklahoma defendants sought to invoke Daimler to defuse the remanded mass action. This time they succeeded. The Oklahoma court last week ruled that it lacked general jurisdiction over the defendants because even though they did extensive business in Oklahoma, they were neither incorporated in nor had their principal place of business in the State. Because the court possessed specific jurisdiction over the defendants only with respect to the claims of the 15 plaintiffs who resided in Oklahoma (and whose claims arose within the State), the court kept alive the claims of those 15 plaintiffs while dismissing the claims of all others for lack of personal jurisdiction. Following the dismissal, Ethicon and Johnson & Johnson promptly removed the remaining 15 claims to federal court on the basis of diversity jurisdiction—the dismissal of all the New Jersey plaintiffs having now created the requisite complete diversity of citizenship.
There is no guarantee, of course, that every state court will embrace Daimler’s mandate as willingly as did the Oklahoma judge and accept its lack of general jurisdiction over large, nationwide corporations headquartered outside the State. Nonetheless, the Oklahoma decision is an early indication that Daimler may well prove to be more effective than CAFA in keeping most nationwide class actions and mass actions out of state court. Unless a defendant corporation is sued in its home State, out-of-state plaintiffs are unlikely to be permitted to join in either class or mass actions, and the defendant will likely be permitted to remove those more limited actions brought by in-state plaintiffs to federal court.
Also published at WLF’s Forbes.com contributor site