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The Class Action Fairness Act of 2005

By David L. Balser and Thuy N. Vu
April 27, 2005

Calling it “a model of effective, bipartisan legislation,” President Bush signed the Class Action Fairness Act of 2005 on Feb. 18, 2005. The Act was designed with two primary purposes:

  1. To reduce “forum-shopping” by plaintiffs and their attorneys searching for sympathetic state courts when deciding where to file suit; and
  2. To enhance fairness to class members of class action settlements.

To achieve these goals, the Act significantly expands federal jurisdiction over multi-state class actions while imposing new requirements on class action settlements in federal court, such as restricting attorney fee awards when class members receive coupons instead of cash in a settlement, and requiring defendants to notify federal and state officials of any proposed class action settlement. Parties involved in class actions initiated on or after Feb. 18, 2005 should fashion their legal strategies with the Act's sweeping changes in mind.

Expanded Federal Jurisdiction

In response to criticism that widespread forum shopping was leading to irrational verdicts and exorbitant damage awards, the Act was designed to reduce forum shopping by significantly expanding federal courts' diversity jurisdiction over class actions. Previously, class action defendants faced three significant obstacles in fighting forum shopping through removal of class actions from state courts to federal courts because a case first filed in state court could not be removed unless all three diversity jurisdiction requirements were met:

  1. No plaintiff is a citizen of the same state as any defendant;
  2. The amount in controversy as to each plaintiff's claim exceeded $75,000; and
  3. No defendant was a resident of the state in which the suit was brought.

If a lawsuit could have originally been filed in federal court under diversity jurisdiction, removal was barred under previous law if any defendant was a citizen of the state in which the suit was brought and not all defendants agreed to removal.

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