The U.S. Supreme Court recently heard oral argument in its second case involving the Class Action Fairness Act (“CAFA”), which is Mississippi ex. rel. Hood v. AU Optronics Corp., No. 12-1036 (see oral argument transcript; SCOTUSblog page).  The question presented is “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.”  The AU Optronics case is an antitrust case alleging price-fixing in the liquid-crystal display market.  The complaint filed by Mississippi’s attorney general was apparently a “copycat” of a previously-filed class action complaint.

This is an issue that has some potential impact on the insurance industry, particularly in the context of state attorney general litigation following a catastrophe (or perhaps in some other context where a state attorney general challenges an insurance practice).  The Louisiana attorney general brought two cases against insurers involving Hurricane Katrina and Rita property insurance claims, both of which were successfully removed to federal court, one of which I was involved in.  See Louisiana ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418 (5th Cir. 2008) (held removable as a “mass action”); In re Katrina Canal Litigation Breaches, 524 F.3d 700 (5th Cir. 2008) (held removable as a “class action”).

At oral argument, there appeared to be a debate within the Court about whether this case should be treated as a “mass action” because the recovery would essentially be for the benefit of numerous Mississippi consumers, or whether it should be treated as a lawsuit solely on behalf of the state, and therefore one that is not subject to federal jurisdiction.  Early in the argument, Justice Ginsburg commented that “I take it if the suit is successful, the money that’s collected will be distributed to all the people who are affected by this conduct,” although counsel for Mississippi challenged that proposition.  (Oral Arg. Tr. at 4.)  Justice Kennedy noted that the complaint asked for $10,000 for each individual.  (Id. at 5.)  Justice Sotomayor asked whether, if damages could be determined and the State was seeking restitution on behalf of consumers, whether that case would be subject to federal jurisdiction.  (Id. at 6.)  Chief Justice Roberts noted the practical problem presented by allowing an attorney general to file a new parens patriae action seeking more money after a defendant reaches a settlement in a class action.  (Id. at 17-19.)  Chief Justice Roberts suggested that, if Mississippi prevailed in this case, this type of scenario likely would become commonplace.  (Id. at 21.) 

The Court also raised some problems that could arise with a finding of federal jurisdiction in this case.  Justice Sotomayor asked about how the provision of CAFA restricting “mass action” jurisdiction to individual claims under $75,000 could be applied in this case.  Counsel for AU Optronics suggested that this provision could be applied only to named plaintiffs.  (Id. at 27.)  There was also significant debate about whether the money potentially recovered by the state in this case would in fact go to individual consumers or to the state.  Justice Scalia and Justice Ginsburg both suggested that the money might go only to the state.  (Id. at 30, 35.)  One difficulty in this case is that the consumers who purchased the numerous products at issue constitute a very large segment of the population (some would say nearly everyone), and hard to identify.  There were also comments suggesting that the Fifth Circuit had decided that issue of state law, and therefore it may not be appropriate for the Supreme Court to address it.  Justice Breyer questioned whether allowing federal jurisdiction in this case might lead to a finding of federal jurisdiction in “perhaps all kinds of State actions where one of the motivating reasons behind the lawsuit is some person hurt our citizens.”  (Id. at 36-37.)  Justice Kennedy suggested that it was clear that the complaint sought both relief for individual citizens and for the state.  (Id. at 42.)  Justice Scalia commented that “Sometimes, Congress doesn’t do it right, you know?  . . . Sometimes, they try to catch everything , but the language they use doesn’t do it.”  (Id. at 46.)

Attempting to read the tea leaves, and I could well be wrong, I suspect we might find here a majority of the Court trying to find common ground on a narrow opinion.  Such a result might not allow corporate defendants to remove all state attorney general parens patriae cases under CAFA, but also not allow attorneys general free reign to keep these suits in state court.  How the line could be drawn here, though, if it can be drawn, is hard to say, except that perhaps the dividing line might focus on whether the consumers will actually obtain a recovery, as opposed to the recovery going only into the state treasury.  If the Court says that cases belong in federal court if the individual  consumers can be identified and will actually receive the recovery, that should help the insurance industry keep more cases in federal court, as those are more likely to be the types of cases in which insurers are sued.