Rethinking Place of Business as Choice of Law in Class Action Lawsuits

Article excerpt

I. INTRODUCTION

In the past century, businesses have come to operate on a national and often global level. In the past century, the United States has seen an enormous nationalization and even globalization of business. As a result, the actions of a single company increasingly have the potential to affect people far beyond the boundaries of that company's home state. When one or a few companies injure large numbers of consumers across the country, aggregate litigation (namely the class action lawsuit) becomes an especially attractive remedy. Aggregating claims allows plaintiffs to save time and money and may also enable them to present a more compelling case by showing the extent of damages a defendant allegedly caused.

Though some of this litigation arises under federal law, many of the underlying claims are governed by state law. Therefore, before a court can aggregate the claims and allow plaintiffs to proceed as a nationwide class, it must decide which state's law will apply to the claims. This decision frequently creates a classic "choice-of-law problem."1

Rule 23 of the Federal Rules of Civil Procedure authorizes class actions as a form of aggregate litigation.2 For certification under Rule 23(b)(3),3 plaintiffs must show that "questions of law or fact common to the members of the class predominate over any questions affecting only individual members" and that the class action device will provide a superior method of adjudication.4 Rule 23(b)(3) lists a number of factors that the court should consider in making the certification decision, including "the difficulties likely to be encountered in the management of a class action."5 A court will not likely certify a class action that encompasses too many variations in either law or fact because the class will not meet the predominance requirement or the manageability standard.

In many class actions based on state law claims,6 plaintiffs seeking certification have been able to prove that common questions of fact exist, or at least that the class can be divided into manageable subclasses, based on common factual backgrounds.7 However, the requirement that there be common questions of law raises a unique set of problems8 which have, until recently, barred plaintiffs from achieving certification of a nationwide class when the claims are based in state law.9 State choice-of-law rules often create a situation in which the court deciding the case has to apply the laws of different states to the different class members. When a single court must apply an unmanageable number of variations in state law to the class members from different states, common questions of law do not predominate. Therefore, the class cannot be certified.

This choice-of-law problem is no small issue. In fact, it can have such a debilitating effect on an effort to bring nationwide class actions that it has come to the forefront of recent class action reform debate in Congress. With the passage of the Class Action Fairness Act,10 it will now be easier for defendants to remove class actions to federal court.11 As federal courts are perceived as less hospitable to plaintiff classes, allowing removal is expected to increase the defendant's chances of successfully having a class decertified once it is in federal court.12 An amendment to this act, proposed by Senator Feinstein, would have limited a defendant's ability to have a class removed to federal court and then decertified on choice-of-law grounds.13 The proposed amendment stated:

(1) the district court shall not deny class certification, in whole or in part, on the ground that the law of more than 1 State will be applied; (2) the district court shall require each party to submit their recommendations for subclassifications among the plaintiff class based on substantially similar State law; and (3) the district court shall- (A) issue subclassifications, as determined necessary, to permit the action to proceed; or (B) if the district court determines such subclassifications are an impracticable method of managing the action, the district court shall attempt to ensure that plaintiffs' State laws are applied to the extent practical. …