Academic journal article Labor Law Journal

Recent Developments in Class Action Fairness Act Jurisprudence

Academic journal article Labor Law Journal

Recent Developments in Class Action Fairness Act Jurisprudence

Article excerpt

I. Introduction

President Bush signed the Class Action Fairness Act ("CAFA") into law on February 18, 2005. The law facilitates removal of class actions from state court to federal court. In addition, it regulates the selection of class counsel, tightens control of attorneys' fees awarded to class counsel, toughens pleading standards, reduces the ability of class counsel to dictate the choice of forum, facilitates interlocutory appeals of class certification rulings, and regulates settlements of class actions. In large part, the CAFA has significantly altered forum-selection and claim-selection strategies of the plaintiffs' lawyers in litigating class actions. In 2010, federal courts decided many CAFA-related cases.

This article examines decisions in various circuit courts of appeals and the U.S. Supreme Court, in which the courts applied the CAFA in an employment-related context.

II. U.S. Supreme Court

A. Hertz Corp. v. Friend, et al.1

The plaintiffs, a group of California-based workers, on behalf of themselves and a potential class comprised of California-based workers, brought a class action in a California state court against the employer, seeking damages for alleged violations of California labor law for alleged wage & hour violations. The employer removed the action, asserting the employer was a citizen of a different state, thereby satisfying federal diversity - of-citizenship jurisdiction requirements. In support of its position, the employer submitted a declaration by an employee relations manager to show that the employer's principal place of business was New Jersey, and not California. The District Court accepted the employer's facts as undisputed; however, based on the facts, it found that the plurality of each of the relevant business activities was in California. Therefore, the District Court concluded that the employer was a California citizen for purposes of the case. On appeal, the Ninth Circuit affirmed, and the employer filed a petition for certiorari in the U.S. Supreme Court.

The Supreme Court granted the writ. Relying on case law concerning the District Court's exercise of diversity jurisdiction before the enactment of the CAFA, the Supreme Court found that citizenship of a corporation was absolutely dependent on the state of incorporation. The Supreme Court noted that when Congress subsequently codified the traditional place of incorporation, a corporation was to be deemed a citizen of any state by which it had been incorporated and of the state where it had its principal place of business. The Supreme Court noted that the lower courts faced difficulties in determining a corporation's principal place of business because corporations came in many different forms and involved many different kinds of business activities. Additionally, the number of factors considered in determining a corporation's principal place of business, grew exponentially as lower courts explicitly combined aspects of the "nerve center" and "business activity" tests, and looked to a corporation's "total activities", sometimes referred to as a corporation's "center of gravity."2 The Supreme Court remarked that, in an effort to find a single, more uniform interpretation of the statutory phrase, it reviewed the Courts of Appeals' divergent and increasingly complex interpretations. The Supreme Court concluded that the principal place of business was best read as referring to the place where a corporation's office directed, controlled, and coordinated the corporation's activities to determine the nerve center.

The Supreme Court came to this conclusion based on three sets of considerations. First, in § 1332(c)(1), the word "place," in its singular form, is used to denote a single principal place of business, rather than multiple places. Second, complex tests produce appeals and reversals, encourage gamesmanship, and diminish the likelihood that results and settlements reflected a claim's legal and factual merits. …

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