Today, the U.S. Supreme Court issued its second decision construing the Class Action Fairness Act of 2005 (“CAFA”) in Mississippi ex. rel. Hood v. AU Optronics Corp., No. 12-1036 (slip opinion).  In a unanimous opinion authored by Justice Sotomayor (for whom I was a law student intern years ago when she was on the Second Circuit), the Court resolved a circuit split between the Fifth Circuit and several other circuits.  The Court held that a suit filed by the Mississippi attorney general, in the name of the State, was not a “mass action” under CAFA because it included a claim for restitution based on injuries suffered by numerous Mississippi citizens who were not parties to the case.  The Court held essentially that the “mass action” provision applies only to suits involving 100 or more named plaintiffs (as opposed to unnamed parties with an interest).  The Court rejected the Fifth Circuit’s view that “mass action” jurisdiction should depend on who are the real parties in interest. 

This decision is likely to largely shift the playing field involving CAFA jurisdiction in suits filed by state attorneys’ general to disputes over whether the suit qualifies as a “class action” because it is brought under a state statute or rule that is sufficiently similar to Federal Rule 23 to qualify as a “class action” under CAFA.  The Court noted that “if Congress had wanted representative actions brought by States as sole plaintiffs to be removable under CAFA on the theory that they are in substance no different from class actions, it would have done so through the class action provision, not the one governing mass actions.”  (Slip op. at 11.)  The Court did not construe the “class action” definition at all in this case (see footnote 2), so that is likely to be the subject of more litigation in the future.  In some cases the defendant(s) can argue that a state attorney general suit should be treated as a “class action” under CAFA, while in other cases that argument may not be available. 

Overall, I would not expect this decision to have a substantial impact on the insurance industry, but it likely will have an impact in some state attorney general suits that follow a catastrophe, such as the litigation brought by the Louisiana attorney general against the insurance industry following Hurricanes Katrina and Rita.  The decision also might result in increased litigation by state attorneys’ general to the extent that it might enable them to more easily avoid federal jurisdiction.

For readers interested in further detail on the Court’s reasoning, Justice Sotomayor’s unanimous opinion was essentially a thorough refutation of various arguments made by the Fifth Circuit below and by the defendant for treating the AU Optronics case as a “mass action.”  The Court concluded that:

1. CAFA’s plain text made clear that the “100 or more persons” referred to named plaintiffs, not unnamed parties in interest; 
2. reading the word “plaintiffs” to include unnamed parties would create an “administrative nightmare” in applying the provision requiring that, in a mass action, individual claims for less than $75,000 be returned to state court;  
3. the provision of CAFA providing that a “mass action” that has been removed cannot be transferred unless a majority of plaintiffs request a transfer would be unworkable if “plaintiffs” included unnamed real parties in interest; and 
4. an inquiry into who are the real parties in interest was not intended by Congress in this circumstance, based on the statutory text and context.