They're Making a Federal Case out of It ... in State Court

Article excerpt

ABSTRACT

Because of an anomaly in the federal diversity jurisdiction statute (28 U.S.C. [section] 1332), relatively few interstate class actions can be heard by federal courts. For that reason, county or district state courts that are accountable only to their local electorates handle the vast majority of interstate class actions--cases typically involving thousands of persons nationwide whose claims are purportedly worth millions of dollars, are premised on the varying laws of many states, and raise important national policy issues with interstate commerce ramifications. There is growing recognition that this situation should be corrected by amending [section] 1332 to expand federal diversity jurisdiction over interstate class actions. With that change, such cases could be assigned to federal courts that have national accountability. However, some lawmakers have questioned whether the problems presented by the anomaly are sufficiently grave to warrant congressional action. This article (a) reviews recent debates on this interstate class action jurisdictional issue and (b) examines new empirical data indicating that legislative action on this issue is overdue.

I. INTRODUCTION

In the last Congress, both houses carefully examined a key judicial policy question: should interstate class actions (that is, large-scale lawsuits with significant interstate commerce implications involving the residents and laws of multiple States) normally be heard by local county courts (that is, by judges typically elected by the residents of the court's locality) or by federal courts (that is, by judges nominated by the President of the United States and confirmed by the duly elected Senators of all fifty states)? These discussions were prompted by introduction of legislation intended to widen the scope of federal diversity jurisdiction over interstate class actions. (1) After several detailed hearings, (2) that legislation passed the House. (3) Senate hearings were also held on the subject, (4) and the Senate Judiciary Committee ultimately endorsed enactment of a bill parallel to that passed by the House. (5) However, the full Senate never considered the measure, and the jurisdiction expansion proposals did not become law. The legislation has been reintroduced in the current session of Congress. (6)

II. THE IMPETUS FOR EXPANDING FEDERAL JURISDICTION OVER INTERSTATE CLASS ACTIONS

The prospect of expanding federal jurisdiction over class actions has taken center stage because of an anomaly in current law that normally causes interstate class actions filed in state courts to remain there, notwithstanding their inherently federal character. In structuring our judicial system, the Framers established that federal courts would hear cases presenting federal law issues (that is, lawsuits asserting claims based on the Constitution, federal statutes or treaties, or involving the federal government as a party), while leaving to state courts the task of adjudicating local questions arising under state laws. However, the Framers did not stop their line-drawing there. In Article III of the U.S. Constitution, they authorized the extension of federal jurisdiction to one category of cases arising under state law: so-called "diversity" cases, defined as suits "between Citizens of different States." In enacting the Judiciary Act of 1789, (7) Congress exercised that authority, specifically empowering federal courts to hear diversity cases that met certain criteria. Such cases are thus firmly entrenched in the federal jurisdictional landscape.

The Framers established the concept of federal diversity jurisdiction out of concern that local biases would render state courts ineffective in adjudicating disputes between in-state plaintiffs and out-of-state defendants. (8) In short, they feared that non-local defendants might be "hometowned." Diversity jurisdiction was designed not only to diminish this risk, but also "to shore up confidence in the judicial system by preventing even the appearance of discrimination in favor of local residents. …