Josh H. Beisner and Brian D. Boyle*

A series of recent decisions rejecting certification of purported nationwide class actions (both for trial and settlement purposes) and several proposed amendments to Fed. R. Civ. P. 23 appear to be stemming the flow of class action filings into the federal courts. However, these recent developments are spawning a rapidly increasing role for state courts in class action litigation, as plaintiffs' counsel seek new, potentially friendlier fora in which to press arguments that have not fared well in the federal courts.

This prospect of accelerating class action exposure in state courts poses challenges for class defendants, particularly for out-of-state defendants facing hostile local courts and jury pools. An increasing premium is being placed on skillful employment of federal jurisdiction and removal doctrines. And state courts, which generally have resisted entreaties to draw major distinctions between state and federal rules governing class actions, are facing a new round of invitations to part company with the federal class action model.

The Federal Decisions

During the past eighteen months, five federal circuit courts have addressed purported nationwide class actions involving common law claims and have found them wanting under Rule 23(b)'s "predominance" test. First, in the Rhone-Poulenc case, the Seventh Circuit (per Judge Posner) overturned a district court order certifying a nationwide class of hemophiliacs who allegedly had suffered injury from a blood-thickening drug. Instrumental to the court's holding was the conclusion that the state common law standards governing the putative class claims-primarily negligence standards-varied materially among the various states. The court concluded that these divergent state standards made it impossible to craft a manageable set of common law jury instructions. The Sixth Circuit followed with a similar holding in the American Medical Systems case, granting a writ of mandamus to dissolve a certified class in a medical prothesis case. The court specifically noted its concurrence with Judge Posner's state law variations analysis in Rhone-Poulenc.

In June 1996, the Third and Fifth Circuits joined the chorus in rapid succession. In the Castano case (discussed in the Fall 1996 issue of Litigation News), the Fifth Circuit reversed an order certifying a nationwide class of cigarette smokers on non-personal injury claims alleging that tobacco companies had fraudulently concealed the addictive nature of tobacco. The court assumed that the individuated laws of each of the fifty states would apply, and citing Rhone-Poulenc, the court concluded that no single trial - and no single jury - could manage such a epic proceeding consistent with Rule 23. And last September, the Eleventh Circuit (in the Andrews case) reversed and remanded a case involving alleged fraud in "900-number" telemarketing programs, finding that the trial court had abused its discretion in finding that the cases would be manageable.

This skepticism concerning the manageability of any nationwide class trial of common law claims has developed alongside increasing federal court hostility toward settlements of class actions that, if proposed for trial, would fail to meet the certification requirements of Rule 23. For example, in its Georgine decision, the Third Circuit echoed the predominance/manageability concerns of its fellow appellate courts in rejecting a proposed settlement of the claims of all persons who had been exposed to cancer-causing asbestos, whether or not they claimed any present injuries. The court found the "number of uncommon issues" in the proceeding to be "colossal." But more fundamentally, the court held that classes certified for settlement purposes only must still meet the requirements of Rule 23, as though the matter were going to be tried. Reiterating the views expressed in its 1995 GM Truck Fuel Tank Litigation decision, the Third Circuit stated that "'a class is a class is a class'" and that "'there is no language in [Rule 23] that can be read to authorize separate, liberalized criteria for settlement classes.'" The Supreme Court granted certiorari in the case and recently heard oral argument on this critical class settlement issue. If Georgine is upheld, the ruling will further lessen the attractiveness of the federal courts to class action plaintiffs' counsel who will elect to litigate in state courts for the additional reason that it may be easier to settle cases there.

Proposed Rule 23 Amendments

As discussed in detail in the Fall 1996 issue of Litigation News, the Advisory Committee on Civil Rules has proposed a series of amendments to Rule 23. Although the amendments under consideration are hardly revolutionary, they would make certification of class actions in federal court somewhat more difficult. For example, the amendments would require a trial court to weigh the burdens of class litigation against the likely benefits to class members (a test to weed out cases that in terms of individual recovery "just ain't worth it"). Another amendment would authorize appellate review of class certification at the discretion of the court of appeals, a step that may cause more careful scrutiny of class proposals at the trial court level. And another provision would specifically authorize the certification of settlement classes, even in instances where a case could not be afforded class treatment for purposes of trial.

Despite arguments by many frequent targets of purported class actions that the Committee should proceed with recommending adoption of all (or at least most) of the proposed amendments at a meeting in early May 1997, there are indications that the Committee will defer recommending any changes until next year, allowing time for the Committee to absorb the Supreme Court's decision in Georgine expected later in the year.

State Courts to the Fore?

The federal court's increasing hostility toward certification of class actions requiring the application of multiple states' laws, their increasing scrutiny of settlement classes, and the possibility that more restrictive class certification requirements will be introduced into Rule 23 is driving class actions toward state courts. And this phenomenon will invite immediate litigation of the question seemingly left unanswered in the Supreme Court's 1985 Shutts decision-whether and under what circumstances a single state's law might properly be deemed to apply to the claims of a nationwide group of consumers. In Shutts, of course, the Supreme Court found it inconsistent with the Due Process Clause for the courts of Kansas to apply that state's substantive law to the contractual claims of class members who had no meaningful contacts whatsoever with the Kansas forum. But the Shutts Court did not have occasion to address the possibility that a single jurisdiction's law might properly be selected to apply to the claims of a multistate class on the basis of the defendant's contact with the forum-e.g., the defendant's principal place of business or state of incorporation. While there are many grounds for questioning the logic and constitutionality of such a choice-of-law outcome (very recently, Chief Judge Morey Sear (E.D. La.) rejected a "one state's law fits all" argument in the course of denying class certification in In re Ford Motor Company Bronco II Product Liability Litigation), the argument is now being made with increasing frequency by plaintiffs' counsel.

The emergence of state fora as the primary class action battlegrounds (surely an unintended result of the recent federal decisions and rules amendment proposals) poses new challenges for class defendants. Many state courts that are proving popular among plaintiffs' class action counsel are, in many respects, poorly suited to manage unwieldy multistate class litigation. For instance, many state trial courts function without clerical assistance, have little familiarity with the laws of other jurisdictions, and are unaccustomed to managing complex national litigation.

As the tidal wave of state court filings continues, long-settled class action procedural principles will be subject to a fresh examination. Although in some locales only lip service is given to the point, most state courts profess to abide by some hybrid of Fed. R. Civ. P. 23 and regard federal class action precedents as authoritative. However, these courts are now all being pressured to deviate from federal precedent on issues that have made the federal courts less attractive fora for instituting class litigation, and some state courts are beginning to oblige.

Because of these and other concerns, class defendants have been forced to devote increasing attention to the jurisdictional and removal principles that offer safe passage to the federal courts. In turn, as state courts have become more active in recent years, the federal courts have been giving frequent, closer scrutiny to jurisdictional issues that feature prominently in the removal of class litigation. For example, after years of silence on the issue, three decisions issued within the last year have created a split among the Fifth and Eleventh Circuits (in the Allen and Tapscott cases, respectively) and the Second Circuit (in its Gilman decision) on the question whether classwide punitive damages claims may ever be aggregated in determining whether the jurisdictional amount has been satisfied in diversity cases.

Legislative Action

Ultimately, legislative and quasi-legislative action may be necessary to arrest the flood of putative class actions flowing into state courts. Several state legislatures are considering measures to restrict the filing and certification of class actions (particularly those on behalf of out-of-state putative class members). However, it is unclear that sufficient action will be taken in a sufficient number of states to stem the tide. Ultimately, federal legislation may be the only effective response to this burgeoning problem.

*Messrs. Beisner and Boyle, both partners in the Washington, D.C. office of O'Melveny & Myers LLP, are class action litigators.