iThe Courts of Appeals for the Ninth and Seventh Circuits have recently held that parens patriae suits filed by state attorneys’ general under state antitrust statutes, seeking damages and/or injunctive relief for the state’s citizens, are not class actions. Accordingly,, they are not subject to the federal Class Action Fairness Act (CAFA), and cannot be consolidated with pending federal class actions under either CAFA or federal Multi-District Litigation procedures. As a result, an attorney general’s parens patriae claim can proceed in state court concurrently with related federal court consumer antitrust class actions. Neither the defense nor plaintiffs’ bars have reason to be pleased.
The Cases
In Washington State v. Chimei Innolux Corp.,[1]Washington State and California Attorneys General brought parens patriae suits on behalf of each state’s citizens in their respective state courts under their state antitrust statutes alleging that the defendants had engaged in price fixing in the market for thin-film transistor liquid crystal display panels. Defendants removed the cases to federal court under CAFA and then consolidated the cases into the pending federal Multi-District Litigation class actions that had been consolidated in the Northern District of California. The District Court remanded the Attorneys’ General’s cases on the ground that the parens patriae actions were not class actions subject to CAFA.
In Illnois v. Au Optronics Corp., Civil Action No. 1:10-cv-05720, 2011 WL 2214034(N.D. Ill. June 6, 2011) the Attorney General for Illinois filed an action against eight manufacturers of LCD panels for violation of the Illinois Antitrust Act. The Attorney General sought damages both for the state, as purchaser of the LCD panels, and also as parens patriae for the citizens of the state impacted by the alleged antitrust violations. The defendants removed the case under CAFA. The Attorney General moved to remand the case, arguing that the state’s claims did not satisfy the requirements of CAFA, that the district court therefore lacked subject matter jurisdiction, and that the case should proceed in state court. The district court agreed and remanded the case. The defendants then obtained permission to appeal the remand order.
The Ninth Circuit Decision
On appeal, the Ninth Circuit agreed that an Attorney General’s parens patriae suit is not a class action. Rather, it is a suit that “articulates an interest apart from the interest of private parties and expresses a quasi-sovereign interest.” The court explained that even though such a suit seeks monetary relief, a parens patriae suit does not meet the requirements of a class action under Fed. R. Civ. P. 23. For example, the attorney general need not establish adequacy and typicality or injury to any class representative. In sum, the attorney general can proceed under the state’s antitrust statute in state court, and need not obtain class certification in order to recover damages for state citizens. Further, depending upon the state statute under which the attorney general sues, any award or settlement is usually deposited in the public treasury and not paid directly to class members. According to the Court, these distinctions separate a parens patriae claim from a standard class action, as that term is defined under CAFA. Accordingly, each suit was outside of the scope of CAFA and could not be consolidated under it. The Ninth Circuit therefore remanded the Attorneys’ General cases back to their respective state courts.
The Seventh Circuit Decision
Shortly after the Ninth Circuit ruling, the Seventh Circuit, in LG Display Co., Ltd., v. Madigan, Civil Action No. 11-8017, 2011 WL 5829918 (7th Cir. November 18, 2011) also upheld the remand of a parens patriae suit to state court in Illinois. Because of the procedural posture of the case, the Seventh Circuit issue its opinion in dicta as part of its decision to deny the petition to appeal the remand order. Still, Seventh Circuit’s logic echoed the Ninth Circuit’s opinion. Essentially, the Seventh Circuit opined that if a parens patriae action is not brought as a class action under Federal Rule 23 or the state law equivalent, it can never be subject to CAFA. Because the Illinois Attorney General filed suit under the Illinois Antitrust Act and not under the Illinois class action statute, the claims were outside of the reach of CAFA and the federal courts. The Court then denied the petition for leave to appeal the remand order.
The Impact of the Rulings
Plaintiffs attorneys may be upset with these decisions because of the impact that any award or settlement in the parens patriae suit will have on the damage recoveries available to them. When an Attorney General obtains a parens patriae monetary award or settlement on behalf of the state’s citizens, private treble damages arguably may no longer be available to the citizens of the state in a class action. Carving out an entire state’s worth of class members, especially a state the size of California, can drastically reduce monetary’ recovery in the class action and corresponding plaintiffs’ counsel’s legal fee award.
Defense lawyers likely also would be concerned about excluding parens patriae suits from CAFA because it will lead to multi-front litigation. In the Ninth Circuit case, for example, the defendants are now faced with defending the pending, consolidated class actions, which had already been certified and consolidated via the Multi District Litigation process, as well as two separate parens patriae actions in California and Washington state courts. This increases defense costs and also increases the risks of inconsistent rulings. Of course, defendants can use these types of actions to their benefit if handled properly. For example, a quick settlement with a state Attorney General could cut off further litigation for citizens of the states involved in the Attorney General actions and limit the client’s exposure in any pending civil suits.
The Seventh and Ninth Circuit decisions also are consistent with a recent ruling of the Fourth Circuit in West Virginia ex. Rel McGraw v. CVS Pharm., Inc.[2]Accordingly, with no contrary rulings in other Circuits, Attorneys General facing strapped state budgets and reduced income from state taxes may turn to parens patriae actions to fill state coffers under the guise of aiding the citizens of their respective states. Assuming the other Circuits follow these three Circuits’ rulings on this issue, it appears that all parties--attorneys and clients alike--may have to get used to the idea of potentially litigating on multiple fronts.
[1] 2011 U.S. App. LEXIS 20083 (9th Cir. 2011).
[2] 646 F.3d 169 (4th Cir. 2011). In In re Katrina Canal Litig. Breaches, 524 F. 3d 700 (5th Cir. 2008), the Fifth Circuit allowed the consolidation of a suit brought by the Louisiana Attorney General. In that case, the Louisiana Attorney General filed the action under the state’s class action statute and not as a parens patriae suit. The Fifth Circuit did not address whether a parens patriae action, on its own, would be considered a class action under CAFA. Interestingly, the Seventh Circuit in LG Display chided the Fifth Circuit for looking beyond the pleadings to determine the nature of the alleged claims in determining whether the claims were subject to CAFA. Arguably, the Seventh Circuit apparently would have decided In re Katrina Canal Litig. Breaches differently.
