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Myths About Diversity Jurisdiction Legislation

Fact: The number of class action suits in state courts has exploded in recent years because trial lawyers increasingly are exploiting and abusing the class action device in a number of states. This bill will curb the state court abuses by moving certain class actions into federal courts, which more consistently decide such complex cases and are better equipped to deal with them fairly and efficiently. Moreover, this legislation will move interstate cases, the types of cases that the Framers of the Constitution intended to be heard in federal court, into the hands of federal court judges who best are positioned to interpret multiple state laws.

Fact: The legislation will only allow the removal of cases of an interstate nature, i.e., when a multi-state plaintiff class or diversity between the plaintiff and defendants exists. The legislation would not affect solely intrastate matters and provides a mechanism for federal courts to send back cases which more appropriately belong in state court including intrastate and local cases, small scope cases (less than 100 plaintiffs or worth less than $1 million) and cases in which a state is a defendant.

Fact: Under the legislation, states would still have the ability to regulate class actions involving their citizens and corporations in their state. The state law applicable to the substantive claim will not change. The legislation simply would allow removal of class actions with diverse plaintiff classes and defendants, exactly the types of cases that should be heard in federal court. The Framers of the Constitution created diversity jurisdiction specifically to protect out of state parties from bias in foreign state courts. States should be able to regulate the conduct of out-of-state businesses operating in their state, but out-of-state parties should be protected from potential bias of state courts.

Fact: This legislation will lead to a minimal increase in the federal caseload because (1) plaintiff's attorneys will be less likely to file frivolous cases, (2) non-meritorious cases will be more quickly weeded out, and (3) duplicative and overlapping cases will be consolidated under the Federal Multidistrict Litigation process. The ability to consolidate duplicative and competing cases will actually reduce the workload of state courts that are currently forced to hear similar cases because no mechanism exists to combine them.

Fact: This legislation is entirely procedural and has no substantive effect on a plaintiff's claim. The legislation does not change the ability of states to pass laws to protect their citizens, does not reduce the access of any plaintiffs to a judicial remedy for their injuries and does not change the substantive legal rights of plaintiffs. Specifically, the legislation only determines whether a state or federal court will hear a case, not which substantive law will be applied. The legislation includes a clarification that it does not change the "choice of law" analysis to determine which state's laws should be applied to hear a claim. Finally, even if a federal court is unable to certify the case as a class action, the plaintiff could still pursue his/her claim. Under the House bill, the federal court could either retain jurisdiction over the case, or dismiss it and allow the plaintiff to re-file in state court with the statute of limitations tolled. Under the Senate bill, the class allegations would be removed and the case would be remanded to state court where the plaintiff could try to form a new class.

Fact: The legislation applies equally to defendants regardless of their business or product, just as all other federal laws apply equally to all parties. Singling out any specific industry for lesser protection under the laws would be an unconstitutional bill of attainder.

Regardless, there is no evidence that class action claims against tobacco companies or firearms manufacturers are treated better or worse in federal court. Most major tobacco litigation would not be affected because most of the suits thus far have been brought by state attorneys-general on behalf of a state. Moreover, the record for tobacco class actions is mixed. Class actions have been certified in state and federal courts, and have been denied certification in state and federal courts.

The evidence in litigation against gun manufacturers indicates that federal courts are just as favorable, if not more favorable, to plaintiffs. The most significant suit brought against gun manufacturers thus far, Hamilton v. Accu-Tek, was actually brought in federal court. It is absurd to argue that federal courts will not fairly or efficiently decide suits against gun manufacturers when the plaintiffs in the most significant suit thus far have chosen to litigate in federal court.

Myth: The legislation will deny plaintiffs their day in court.

Fact: This bill has no impact on substantive rights. If an action fairly meets the law's requirements, then a group of plaintiffs can proceed with their lawsuits in one action - a class action. If the lawsuit fails to meet federal certification requirements, the plaintiff would still be able to proceed with his/her claim and would have the opportunity to form a new class. No plaintiff's claim would be barred.

Fact: A premise of this bill is that class actions involving plaintiffs from multiple states or defendants from out of state should be certifiable only in federal court under the federal certification standard. Plaintiffs lawyers should be prevented from taking advantage of lax certification standards in one state to bring a class action with class members from multiple states when the class would not be certified under the other states' laws or under federal law. This results in a "race to the bottom" where the states with the lowest standards become magnets for class actions. By allowing the certification of multi-state classes on bases that have no parallel foundation in federal court, the forum state interprets and dictates the law of the states in which the other class members reside. This is a mutation of federalism that deserves to be redressed.

It does not make sense that a state court judge elected by voters of one state should hear a suit involving plaintiff class members of other states who have not consented to that suit. The state court judge is accountable only to a small percentage of the class members in such an action. A federal judge should hear such a case.

Fact: This argument is a red herring foremost because corporations will continue to be subjected to properly certified multi-state class actions under this bill. Moreover, it completely ignores the reality of corporate behavior. Government agencies, concern for consumer loyalty, business ethics and pressure from other businesses, potential lawsuits, and white-collar crime prosecution are all factors that provide strong incentives for corporations to behave lawfully.

NAM STAFF CONTACT: Lawrence Fineran, (202) 637-3174, lfineran@nam.org, Resources, Environment & Regulation Policy Department