FJC's Study of Diversity Jurisdiction Class Actions

The FJC intends to compare the report's findings with similar data for diversity class actions filed after CAFA's effective date. Although that comparison has not yet been completed, the study hints at several significant findings.

Significant Findings

• First, the passage of CAFA, which has increased the number of diversity class actions pending in federal court, should not overburden federal judges and the federal courts based upon the study's conclusion that such actions involve little litigation activity.
• Second, anecdotal evidence suggests that judges will not approve post-CAFA settlements with the same frequency as before the passage of CAFA.
• Third, that every case in which a class was certified resulted in a settlement suggests that class certification can be a decisive turning point in determining a case outcome.
• Fourth, at first glance, the attorneys' fee awards in settled cases seem disproportionately high relative to the lack of motion practice. These tentative conclusions are explored in the Discussion section of this article.

Congress Passed CAFA to Correct Perceived Abuses of Class Actions

Congress determined that in the decade prior to CAFA's passage, there were “abuses of the class action device.” Pub. L. No. 109-2, ' 2(a)(2), 119 Stat. 4 (Feb. 18, 2005) (codified as amended in various sections of 28 U.S.C.). The abuses included state and local courts “keeping cases of national importance out of Federal court” and “sometimes acting in ways that demonstrate bias against out-of-State defendants.” Id. at ” 2(a)(4)(A), 2(a)(4)(B). Congress also found that “[c]lass members often receive little or no benefit from class actions, and are sometimes harmed, such as where ' (A) counsel are awarded large fees, while leaving class members with coupons or other awards of little or no value.” Id. at ' 2(a)(3).

To correct these abuses, Congress passed CAFA. The Act expanded federal diversity jurisdiction for class actions to include original and removal jurisdiction over class actions in which the aggregate value of all plaintiffs' claims exceeds $5 million when any member of a class of plaintiffs is a citizen of a different state from any defendant. 28 U.S.C. ' 1332(d)(2); 28 U.S.C. ' 1453(b); see also Amoche v. Guarantee Trust Life Ins. Co., 556 F.3d 41, 42, 47 ' 48 (1st Cir. 2009); Preston v. Tenet Healthsystem Mem'l Med. Ctr., Inc., 485 F.3d 793, 797 (5th Cir. 2007). This expanded federal diversity jurisdiction is subject to certain statutory exceptions. 28 U.S.C. ” 1332(d)(3) ' (5), (9), (11), 1453(d). CAFA also includes procedural safeguards for class action settlements, which some courts have interpreted as requiring heightened scrutiny of coupon and other settlements. See, e.g., Figueroa v. Sharper Image Corp., 517 F. Supp. 2d 1292, 1321 (S.D. Fl. 2007) (explaining that the language of CAFA “impl[ies] a greater level of scrutiny” to coupon settlements); New Jersey Carpenters Vacation Fund v. Harborview Mortgage Loan Trust 2006-4, 581 F. Supp. 2d 581, 584 (S.D.N.Y. 2008) (“CAFA was created ' to provide stricter scrutiny of counsel, awards, and settlements”).

Many commentators characterized CAFA as “an unmitigated boon for corporate defendants” because it would “minimize” the ability of pro-plaintiff state courts that had developed into 'magnets' for class action filings to exert undue influence over targeted companies and industries.” Brian Anderson and Mel Schwing, CAFA Case Study: Settlement Rejection Reveals Mixed Impact of Class Action Law, 58 Contemporary Legal Note Series, 1 (Feb. 2008 Washington Legal Foundation).

Background of the FJC's CAFA Study

The FJC has undertaken a long-term study of the impact of CAFA upon federal courts. Phase One of the study showed that after the passage of CAFA, the number of class actions based on diversity jurisdiction pending in federal district courts increased. This increase is consistent with the purposes of the Act, including the expansion of federal diversity jurisdiction in class actions of national importance. Perhaps surprising in that the Act was thought to be a benefit for defendants seeking to avoid certain state court judges seemingly partial to plaintiffs, the post-CAFA increase in diversity jurisdiction class actions in federal court largely is due, not to the removal of cases, but by diversity class actions filed as original proceedings in federal court.

Phase Two of the study is intended to measure CAFA's impact on litigation activity and judicial rulings in federal court class actions. Toward that end, Phase Two will compare the litigation activity, outcomes, and case characteristics of diversity jurisdiction class actions filed in or removed to federal court in the two years prior to CAFA's effective date with such cases after CAFA's effective date.

Summary of Phase Two Preliminary Findings

The FJC identified 254 diversity jurisdiction class actions that had been filed in or removed to federal court in the two years preceding CAFA's effective date. The report defined a class action as “any civil action in which the plaintiff raises class action allegations in the original complaint, in state or deferral court, or at any subsequent stage in the proceedings ' regardless of whether plaintiffs ever moved for class certification.” Lee and Willging, Preliminary Findings from Phase Two's Pre-CAFA Sample of Diversity Class Actions, at 1. The report limited itself to 231 of those 254 cases, which represented those diversity class actions that had reached a final disposition in district court prior to publication of the report. Of those 231 cases, 134 were brought in state court and removed to federal court, whereas 97 cases were brought in federal court.

Part One: 'Description of the Sample Class Actions'

The report is divided into three parts. Part One of the Report describes the nature of the case, the types of classes sought, the number and types of motions filed, the disposition of the cases, and their duration. Slightly less than two-thirds of the 231 cases, or 150, were common-law contract or statutory consumer protection actions, including cases alleging fraud. Slightly less than one-third of the cases, 75, were tort actions, including product liability cases. Six cases did not fit into either of those two categories.

Predictably, 132 of the cases based class action status upon state rules (most of the cases in the sample were cases brought in state court and then removed to federal court). Of the remainder, 55 cases cited Rule 23(b)(3), 35 cases cited Rule 23(b)(2), 22 cases cited Rule 23(b)(1)(A) or (B), 18 cases cited Rule 23(b) generally without reference to a specific subsection, and 20 cases cited another basis or no basis for class action status.

All 231 cases alleged at least one state law claim and 20 cases also raised at least one federal law claim.

The report examined the number of motions filed in the sampled cases, excluding certain motions such as motions for extensions of time and pro hac vice motions. In 95 cases, there was only one motion filed. In another 34 cases, no motions were filed. Thus, in about 56% of the cases studied, one or no motions were filed. Three cases had seven motions filed, the highest number of motions in the cases studied. The most frequent motion was a motion to remand, filed in 101 cases, which amounted to 75% of the removed cases. Motions to dismiss for failure to state a claim were filed in 91 cases. Motions to certify a class were filed in 56 cases, which amounts to just less than one-quarter of the cases studied. Motions for summary judgment were filed in 37 cases.

The study found that 70 cases were remanded back to state court. Of the remaining 161 in federal court, 88 were voluntarily dismissed, 46 were dismissed by the court, 21 were settled, and 6 were administratively closed. The report did not find any cases granting summary judgment for plaintiff or decided by a verdict. (The absence of any verdicts, though, may be explained by the short, two-year time period of the study and that the study excluded those diversity class actions that had not reached a final disposition during that two-year time frame. These same reasons may also support the position that dispositions by settlement are more common than the study suggests.)

The Report includes data on the duration of the cases studied, finding that about four months was the typical duration for a remanded case, about nine to 12 months for the typical voluntarily dismissed case, about 14 to 16 months for cases dismissed by a motion, and about 18 to 21 months for a typical case resulting in a settlement.

Part Two: 'Analysis of Case Outcomes and Motions Activity'

Part Two of the Report presents motion activity broken down by the type of case disposition, finding that the number of motions averaged 1.3 in cases voluntarily dismissed, 1.6 for remanded cases, 2.3 for cases disposed of by motion, and 3.2 for cases that resulted in a class settlement. The report noted that “even the average class action settlement based on diversity of citizenship, pre-CAFA, did not involve that much motion activity.” Lee and Willging, Preliminary Findings from Phase Two's Pre-CAFA Sample of Diversity Class Actions, at 8.

In cases voluntarily dismissed, the most common motion was a motion to dismiss for failure to state a claim, made in 34.1% of cases voluntarily dismissed. Other common motions in cases voluntarily dismissed included remand motions (made in 20.5% of the cases), motions to certify a class (18.2%), motions for summary judgment (11.4%), and motions to dismiss for lack of subject matter jurisdiction (9.1%).

The most common motion in remanded cases was a motion to remand, followed by motions to dismiss for failure to state a claim (filed in 30% of remanded cases), motions to dismiss for lack of subject matter jurisdiction (4.3%), and motions to dismiss for lack of personal jurisdiction (4.3%).

For cases disposed of by motion, the most common motions filed were motions to dismiss for failure to state a claim (made in 60.9% of the cases disposed of by motion), motions for summary judgment (34.8%), motions to certify a class (32.6%), motions to dismiss for lack of subject matter jurisdiction (23.9%), motions to remand (17.4%), and motions to dismiss for lack of personal jurisdiction (10.9%).

In every case that resulted in a class settlement, the plaintiffs filed at least one motion to certify a class. Other common motions were motions to dismiss for failure to state a claim (filed in 42.8% of the settled cases), motions for summary judgment (38.1%), and motions to remand (19%).

Part Three: 'Class Certification And Class Settlements'

Part Three describes the class settlements and reports on certification motions, the settlement review process, notification procedures, objectors and opt-outs, settlement amounts, and attorneys' fees. The Report cautions that because only 21 of the sampled cases resulted in a class settlement, its findings concerning settled cases should not be generalized beyond the sampled cases.

The report identified 70 motions to certify a class filed in 56 cases. Every case in which a certification motion was granted resulted in a class settlement. The settled cases were similar in many respects to the entire sample of cases. For instance, two-thirds of the class settlements involved contract/consumer credit cases and one-third involved tort issues, or defenses” as required by Rule 23(c)(2)(B)(iii). In 14% of the cases, there was a failure to specify in the settlement notice that a class member may appear through an attorney, that the court will exclude from the class any member who requests exclusion, and the time and manner for requesting exclusion.

In nine of the class settlements, the class size was 25, 52, 106, 132, 186, 4,100, 5,400, 77,000, and 200,000 members. The report found no information regarding class size in the other 12 class settlements. In twelve of the settled cases, members opted out, ranging from one to 1,061 members opting out in each case. There were no opt-outs in seven cases and no information regarding opt-outs in two cases.

In four settlements, one or more objectors argued that the monetary amount of the settlement was insufficient, that certain groups of claimants were unfairly favored, and that the attorney fees were disproportionate to the class settlement. In one case, an objector argued that the nonmonetary portions of the settlement, such as coupons, provided little or no benefit to class members.

Without making any changes, judges approved 18 of the 21 proposed settlements. In the other three cases, judges approved the proposed settlements after relatively small changes. For example, in one of those cases, the court delayed approval of a settlement and ordered a claims administrator to telephone class members who had not responded to the first mailed notice of settlement and to send an additional letter specifying the member's share of the settlement.

Information was available on the monetary amount of the settlement in 18 of the settled cases. The median settlement was $2,950,000 and the mean settlement was $9,480,967. Six settlements included a declaratory judgment or injunction. Five settlements involved non-monetary relief. In 14 cases, information regarding the amount awarded to class representatives was available; the median award was $12,500 and the mean award was $21,370.93. Four settlements resulted in a distribution of some proceeds to an entity, including a bar association and the American Red Cross Katrina Relief Fund, in lieu of class members.

Plaintiffs' attorneys requested fees in all the settlements. The median fee request was $1,300,000 and the mean fee request was $3,524,664. Courts awarded attorney fees in the amount requested in 16 cases. In the other five cases, the award ranged from 62% to 93% of the requested fee. For all 21 settled cases, the median fee award was $850,263 and the mean fee award was $3,397,381.

Discussion

It Is Premature to Assume That CAFA Will Minimally Impact the Resources of Federal Courts Based Upon the FJC's Preliminary Findings?

If one accepts the report's conclusion that diversity jurisdiction class actions often involve little litigation activity, then the passage of CAFA, which has increased the number of diversity class actions pending in federal court, should not overburden federal judges and the federal courts. Perhaps CAFA would even lessen that burden by reducing the number of remand motions. However, there are at least three considerations that caution against rushing to such a conclusion.

First, the study included only diversity class actions that reached a final disposition in federal court, excluding 23 diversity class actions that were filed or removed to federal court but that had not reached a final disposition. There may well have been significant litigation activity in the cases that had not yet reached a final disposition. It might even be the case that significant litigation activity tends to delay a final disposition as the parties engage in heavy motion practice. Thus, the 23 excluded cases could significantly alter the study's findings regarding the relative absence of litigation activity in diversity jurisdiction class actions.

Second, the study categorized remand as a final disposition and did not study the litigation activity that took place in state court after remand. As 70 cases were remanded, whether those cases followed the pattern of inactivity in cases that remained in federal court is significant, since CAFA will likely reduce the number of remanded cases.

Third, the conclusion that CAFA will not significantly burden the federal courts ignores the number of motions filed since CAFA's passage concerning the correct interpretation and application of CAFA. One study determined that from Feb. 17, 2005 to Aug. 18, 2007, there were 182 district court opinions that resolved a dispute between the parties regarding CAFA. Kevin M. Clermont and Theodore Eisenberg, CAFA Judicata: A Tale of Waste and Politics, 156 U. Pa. L. Rev. 1553, 1561 (June 2008). That same study identified 44 court of appeals opinions resolving a disputed point concerning CAFA. Id. By comparison, the Private Securities Litigation Reform Act of 1995 generated 154 district court opinions and 14 court of appeals opinions in the first two and a half years of its existence. Id. at 1560. The Securities Litigation Uniform Standards Act of 1998 yielded only 41 district court opinions and six court of appeals opinions in the first two and a half years following its passage. Id. at 1561. While litigation concerning the interpretation and application of CAFA should decrease as disputed matters are resolved by the courts, in the short term such litigation will impose a burden upon federal judges and courts that did not previously exist.

CAFA Likely Will Cause Judges to Reject Proposed Class Action Settlements with Greater Frequency

The FJC Study suggests that prior to CAFA, federal judges routinely approved proposed class settlements. Of the 21 settled cases in the study, 18 were approved as proposed and the other three were approved with only modest changes. CAFA, however, “became law in large part due to widespread condemnation of class action settlements that released large numbers of class member claims in exchange for dubiously valuable 'coupons' to class members and exorbitant fee awards to plaintiff's lawyers.” Anderson and Schwing at 1. CAFA's provisions designed to increase judicial scrutiny of settlements include that in any proposed settlement involving coupons, the court may approve the settlement only upon a written finding that the proposed settlement is “fair, reasonable, and adequate for class members.” 28 U.S.C. ' 1712(e). CAFA also requires that notice of proposed class settlements be provided to certain state and federal officials, including the attorneys general of states in which any class member resides.

Anecdotal evidence concerning proposed settlements since CAFA's enactment suggests that CAFA is causing judges to reject class settlements with greater frequency than before. For example, in Figueroa v. Sharper Image Corp., 517 F. Supp. 2d 1292 (S.D. Fla. 2007), the court denied approval of a proposed nationwide class settlement. Reflecting the impact of the notice required by CAFA to government officials, the court said, “What distinguishes this case from other class actions, however, is the singular appearance of the Attorneys General of thirty-five states and the District of Columbia, representing hundreds of thousands, if not millions, of eligible class members. Appearing as amicus curiae on behalf of their citizens, the Attorneys General have objected at every turn to each version of the parties' proposed coupon settlement.” Id. at 1328.

Whether the Figueroa decision is part of a growing trend in which courts reject proposed class settlements is an area for further study, and which could be answered by the next phase or phases of the FJC's study. Preliminarily, though, it appears that CAFA's provisions intended to guard against coupon settlements that have little value to class members has teeth.

Conclusion

The FJC study is notable for its conclusion that in the two years prior to CAFA's enactment, diversity jurisdiction class actions involved little litigation activity and did not have a large impact upon federal courts. However, it would be premature to draw from this conclusion that CAFA's future impact will be negligible upon the resources of federal courts because the FJC study did not include data from cases that did not reach a final disposition within the study's two-year time frame, did not include data from cases that were remanded but which are likely to remain in federal court under CAFA, and does not account for litigation concerning the interpretation and application of CAFA.

CAFA's provisions regarding judicial review of settlements have resulted in the rejection of at least some proposed settlements, a change from the two-year period studied in the FJC report. The FJC study also suggests that practitioners should not take class certification motions lightly, because such motions may have a significant impact upon settlement.

Completion of the FJC study will shed further light upon diversity jurisdiction class actions and the impact of CAFA upon the resources of the federal courts.

Beth L. Kaufman, a member of this newsletter's Board of Editors, is a partner at Schoeman, Updike & Kaufman, LLP, a certified women-owned law firm with offices in New York and Chicago. Jeremy Weintraub is counsel to the firm.

In November 2008, as part of its ongoing study of the impact of the Class Action Fairness Act of 2005 (“CAFA”) upon federal courts, the Federal Judicial Center (“FJC”) published Preliminary Findings from Phase Two's Pre-CAFA Sample of Diversity Class Actions. That report studied 231 diversity jurisdiction class actions filed in or removed to federal court in the two years prior to Feb. 18, 2005, CAFA's effective date.

The report concluded that diversity jurisdiction class actions often involved little litigation activity. Plaintiffs filed motions to certify a class in less than 25% of the 231 cases. In 56% of the cases, one or zero motions were filed. Of the cases removed to federal court, more than half were remanded back to state court. Of those cases not remanded, the most frequent disposition was a voluntary dismissal, which occurred in 38% of the cases not remanded. The study reports “that many of the class actions filed or removed in the two years prior to CAFA's effective date did not have a large impact on the resources of the federal courts.” Emery G. Lee and Thomas E. Willging, Preliminary Findings from Phase Two's Pre-CAFA Sample of Diversity Class Actions, p. 7 (Federal Judicial Center 2008), available at http://www.fjc.gov/public/pdf.nsf/lookup/cafa1108.pdf/$file/cafa1108.pdf (last visited Sept. 3, 2009).

The report found that parties proposed class settlements in 21 cases and that judges approved 18 of those without any modification and approved the other three with modifications. In five cases, the court granted motions to certify a litigation class and all of those five cases resulted in a class settlement.

The FJC intends to compare the report's findings with similar data for diversity class actions filed after CAFA's effective date. Although that comparison has not yet been completed, the study hints at several significant findings.

Significant Findings

• First, the passage of CAFA, which has increased the number of diversity class actions pending in federal court, should not overburden federal judges and the federal courts based upon the study's conclusion that such actions involve little litigation activity.
• Second, anecdotal evidence suggests that judges will not approve post-CAFA settlements with the same frequency as before the passage of CAFA.
• Third, that every case in which a class was certified resulted in a settlement suggests that class certification can be a decisive turning point in determining a case outcome.
• Fourth, at first glance, the attorneys' fee awards in settled cases seem disproportionately high relative to the lack of motion practice. These tentative conclusions are explored in the Discussion section of this article.

Congress Passed CAFA to Correct Perceived Abuses of Class Actions

Congress determined that in the decade prior to CAFA's passage, there were “abuses of the class action device.” Pub. L. No. 109-2, ' 2(a)(2), 119 Stat. 4 (Feb. 18, 2005) (codified as amended in various sections of 28 U.S.C.). The abuses included state and local courts “keeping cases of national importance out of Federal court” and “sometimes acting in ways that demonstrate bias against out-of-State defendants.” Id. at ” 2(a)(4)(A), 2(a)(4)(B). Congress also found that “[c]lass members often receive little or no benefit from class actions, and are sometimes harmed, such as where ' (A) counsel are awarded large fees, while leaving class members with coupons or other awards of little or no value.” Id. at ' 2(a)(3).

To correct these abuses, Congress passed CAFA. The Act expanded federal diversity jurisdiction for class actions to include original and removal jurisdiction over class actions in which the aggregate value of all plaintiffs' claims exceeds $5 million when any member of a class of plaintiffs is a citizen of a different state from any defendant. 28 U.S.C. ' 1332(d)(2); 28 U.S.C. ' 1453(b); see also Amoche v. Guarantee Trust Life Ins. Co. , 556 F.3d 41, 42, 47 ' 48 (1st Cir. 2009); Preston v. Tenet Healthsystem Mem'l Med. Ctr., Inc. , 485 F.3d 793, 797 (5th Cir. 2007). This expanded federal diversity jurisdiction is subject to certain statutory exceptions. 28 U.S.C. ” 1332(d)(3) ' (5), (9), (11), 1453(d). CAFA also includes procedural safeguards for class action settlements, which some courts have interpreted as requiring heightened scrutiny of coupon and other settlements. See, e.g., Figueroa v. Sharper Image Corp. , 517 F. Supp. 2d 1292, 1321 (S.D. Fl. 2007) (explaining that the language of CAFA “impl[ies] a greater level of scrutiny” to coupon settlements); New Jersey Carpenters Vacation Fund v. Harborview Mortgage Loan Trust 2006-4 , 581 F. Supp. 2d 581, 584 (S.D.N.Y. 2008) (“CAFA was created ' to provide stricter scrutiny of counsel, awards, and settlements”).

Many commentators characterized CAFA as “an unmitigated boon for corporate defendants” because it would “minimize” the ability of pro-plaintiff state courts that had developed into 'magnets' for class action filings to exert undue influence over targeted companies and industries.” Brian Anderson and Mel Schwing, CAFA Case Study: Settlement Rejection Reveals Mixed Impact of Class Action Law, 58 Contemporary Legal Note Series, 1 (Feb. 2008 Washington Legal Foundation).

Background of the FJC's CAFA Study

The FJC has undertaken a long-term study of the impact of CAFA upon federal courts. Phase One of the study showed that after the passage of CAFA, the number of class actions based on diversity jurisdiction pending in federal district courts increased. This increase is consistent with the purposes of the Act, including the expansion of federal diversity jurisdiction in class actions of national importance. Perhaps surprising in that the Act was thought to be a benefit for defendants seeking to avoid certain state court judges seemingly partial to plaintiffs, the post-CAFA increase in diversity jurisdiction class actions in federal court largely is due, not to the removal of cases, but by diversity class actions filed as original proceedings in federal court.

Phase Two of the study is intended to measure CAFA's impact on litigation activity and judicial rulings in federal court class actions. Toward that end, Phase Two will compare the litigation activity, outcomes, and case characteristics of diversity jurisdiction class actions filed in or removed to federal court in the two years prior to CAFA's effective date with such cases after CAFA's effective date.

Summary of Phase Two Preliminary Findings

The FJC identified 254 diversity jurisdiction class actions that had been filed in or removed to federal court in the two years preceding CAFA's effective date. The report defined a class action as “any civil action in which the plaintiff raises class action allegations in the original complaint, in state or deferral court, or at any subsequent stage in the proceedings ' regardless of whether plaintiffs ever moved for class certification.” Lee and Willging, Preliminary Findings from Phase Two's Pre-CAFA Sample of Diversity Class Actions, at 1. The report limited itself to 231 of those 254 cases, which represented those diversity class actions that had reached a final disposition in district court prior to publication of the report. Of those 231 cases, 134 were brought in state court and removed to federal court, whereas 97 cases were brought in federal court.

Part One: 'Description of the Sample Class Actions'

The report is divided into three parts. Part One of the Report describes the nature of the case, the types of classes sought, the number and types of motions filed, the disposition of the cases, and their duration. Slightly less than two-thirds of the 231 cases, or 150, were common-law contract or statutory consumer protection actions, including cases alleging fraud. Slightly less than one-third of the cases, 75, were tort actions, including product liability cases. Six cases did not fit into either of those two categories.

Predictably, 132 of the cases based class action status upon state rules (most of the cases in the sample were cases brought in state court and then removed to federal court). Of the remainder, 55 cases cited Rule 23(b)(3), 35 cases cited Rule 23(b)(2), 22 cases cited Rule 23(b)(1)(A) or (B), 18 cases cited Rule 23(b) generally without reference to a specific subsection, and 20 cases cited another basis or no basis for class action status.

All 231 cases alleged at least one state law claim and 20 cases also raised at least one federal law claim.

The report examined the number of motions filed in the sampled cases, excluding certain motions such as motions for extensions of time and pro hac vice motions. In 95 cases, there was only one motion filed. In another 34 cases, no motions were filed. Thus, in about 56% of the cases studied, one or no motions were filed. Three cases had seven motions filed, the highest number of motions in the cases studied. The most frequent motion was a motion to remand, filed in 101 cases, which amounted to 75% of the removed cases. Motions to dismiss for failure to state a claim were filed in 91 cases. Motions to certify a class were filed in 56 cases, which amounts to just less than one-quarter of the cases studied. Motions for summary judgment were filed in 37 cases.

The study found that 70 cases were remanded back to state court. Of the remaining 161 in federal court, 88 were voluntarily dismissed, 46 were dismissed by the court, 21 were settled, and 6 were administratively closed. The report did not find any cases granting summary judgment for plaintiff or decided by a verdict. (The absence of any verdicts, though, may be explained by the short, two-year time period of the study and that the study excluded those diversity class actions that had not reached a final disposition during that two-year time frame. These same reasons may also support the position that dispositions by settlement are more common than the study suggests.)

The Report includes data on the duration of the cases studied, finding that about four months was the typical duration for a remanded case, about nine to 12 months for the typical voluntarily dismissed case, about 14 to 16 months for cases dismissed by a motion, and about 18 to 21 months for a typical case resulting in a settlement.

Part Two: 'Analysis of Case Outcomes and Motions Activity'

Part Two of the Report presents motion activity broken down by the type of case disposition, finding that the number of motions averaged 1.3 in cases voluntarily dismissed, 1.6 for remanded cases, 2.3 for cases disposed of by motion, and 3.2 for cases that resulted in a class settlement. The report noted that “even the average class action settlement based on diversity of citizenship, pre-CAFA, did not involve that much motion activity.” Lee and Willging, Preliminary Findings from Phase Two's Pre-CAFA Sample of Diversity Class Actions, at 8.

In cases voluntarily dismissed, the most common motion was a motion to dismiss for failure to state a claim, made in 34.1% of cases voluntarily dismissed. Other common motions in cases voluntarily dismissed included remand motions (made in 20.5% of the cases), motions to certify a class (18.2%), motions for summary judgment (11.4%), and motions to dismiss for lack of subject matter jurisdiction (9.1%).

The most common motion in remanded cases was a motion to remand, followed by motions to dismiss for failure to state a claim (filed in 30% of remanded cases), motions to dismiss for lack of subject matter jurisdiction (4.3%), and motions to dismiss for lack of personal jurisdiction (4.3%).

For cases disposed of by motion, the most common motions filed were motions to dismiss for failure to state a claim (made in 60.9% of the cases disposed of by motion), motions for summary judgment (34.8%), motions to certify a class (32.6%), motions to dismiss for lack of subject matter jurisdiction (23.9%), motions to remand (17.4%), and motions to dismiss for lack of personal jurisdiction (10.9%).

In every case that resulted in a class settlement, the plaintiffs filed at least one motion to certify a class. Other common motions were motions to dismiss for failure to state a claim (filed in 42.8% of the settled cases), motions for summary judgment (38.1%), and motions to remand (19%).

Part Three: 'Class Certification And Class Settlements'

Part Three describes the class settlements and reports on certification motions, the settlement review process, notification procedures, objectors and opt-outs, settlement amounts, and attorneys' fees. The Report cautions that because only 21 of the sampled cases resulted in a class settlement, its findings concerning settled cases should not be generalized beyond the sampled cases.

The report identified 70 motions to certify a class filed in 56 cases. Every case in which a certification motion was granted resulted in a class settlement. The settled cases were similar in many respects to the entire sample of cases. For instance, two-thirds of the class settlements involved contract/consumer credit cases and one-third involved tort issues, or defenses” as required by Rule 23(c)(2)(B)(iii). In 14% of the cases, there was a failure to specify in the settlement notice that a class member may appear through an attorney, that the court will exclude from the class any member who requests exclusion, and the time and manner for requesting exclusion.

In nine of the class settlements, the class size was 25, 52, 106, 132, 186, 4,100, 5,400, 77,000, and 200,000 members. The report found no information regarding class size in the other 12 class settlements. In twelve of the settled cases, members opted out, ranging from one to 1,061 members opting out in each case. There were no opt-outs in seven cases and no information regarding opt-outs in two cases.

In four settlements, one or more objectors argued that the monetary amount of the settlement was insufficient, that certain groups of claimants were unfairly favored, and that the attorney fees were disproportionate to the class settlement. In one case, an objector argued that the nonmonetary portions of the settlement, such as coupons, provided little or no benefit to class members.

Without making any changes, judges approved 18 of the 21 proposed settlements. In the other three cases, judges approved the proposed settlements after relatively small changes. For example, in one of those cases, the court delayed approval of a settlement and ordered a claims administrator to telephone class members who had not responded to the first mailed notice of settlement and to send an additional letter specifying the member's share of the settlement.

Information was available on the monetary amount of the settlement in 18 of the settled cases. The median settlement was $2,950,000 and the mean settlement was $9,480,967. Six settlements included a declaratory judgment or injunction. Five settlements involved non-monetary relief. In 14 cases, information regarding the amount awarded to class representatives was available; the median award was $12,500 and the mean award was $21,370.93. Four settlements resulted in a distribution of some proceeds to an entity, including a bar association and the American Red Cross Katrina Relief Fund, in lieu of class members.

Plaintiffs' attorneys requested fees in all the settlements. The median fee request was $1,300,000 and the mean fee request was $3,524,664. Courts awarded attorney fees in the amount requested in 16 cases. In the other five cases, the award ranged from 62% to 93% of the requested fee. For all 21 settled cases, the median fee award was $850,263 and the mean fee award was $3,397,381.

Discussion

It Is Premature to Assume That CAFA Will Minimally Impact the Resources of Federal Courts Based Upon the FJC's Preliminary Findings?

If one accepts the report's conclusion that diversity jurisdiction class actions often involve little litigation activity, then the passage of CAFA, which has increased the number of diversity class actions pending in federal court, should not overburden federal judges and the federal courts. Perhaps CAFA would even lessen that burden by reducing the number of remand motions. However, there are at least three considerations that caution against rushing to such a conclusion.

First, the study included only diversity class actions that reached a final disposition in federal court, excluding 23 diversity class actions that were filed or removed to federal court but that had not reached a final disposition. There may well have been significant litigation activity in the cases that had not yet reached a final disposition. It might even be the case that significant litigation activity tends to delay a final disposition as the parties engage in heavy motion practice. Thus, the 23 excluded cases could significantly alter the study's findings regarding the relative absence of litigation activity in diversity jurisdiction class actions.

Second, the study categorized remand as a final disposition and did not study the litigation activity that took place in state court after remand. As 70 cases were remanded, whether those cases followed the pattern of inactivity in cases that remained in federal court is significant, since CAFA will likely reduce the number of remanded cases.

Third, the conclusion that CAFA will not significantly burden the federal courts ignores the number of motions filed since CAFA's passage concerning the correct interpretation and application of CAFA. One study determined that from Feb. 17, 2005 to Aug. 18, 2007, there were 182 district court opinions that resolved a dispute between the parties regarding CAFA. Kevin M. Clermont and Theodore Eisenberg, CAFA Judicata: A Tale of Waste and Politics, 156 U. Pa. L. Rev. 1553, 1561 (June 2008). That same study identified 44 court of appeals opinions resolving a disputed point concerning CAFA. Id. By comparison, the Private Securities Litigation Reform Act of 1995 generated 154 district court opinions and 14 court of appeals opinions in the first two and a half years of its existence. Id. at 1560. The Securities Litigation Uniform Standards Act of 1998 yielded only 41 district court opinions and six court of appeals opinions in the first two and a half years following its passage. Id. at 1561. While litigation concerning the interpretation and application of CAFA should decrease as disputed matters are resolved by the courts, in the short term such litigation will impose a burden upon federal judges and courts that did not previously exist.

CAFA Likely Will Cause Judges to Reject Proposed Class Action Settlements with Greater Frequency

The FJC Study suggests that prior to CAFA, federal judges routinely approved proposed class settlements. Of the 21 settled cases in the study, 18 were approved as proposed and the other three were approved with only modest changes. CAFA, however, “became law in large part due to widespread condemnation of class action settlements that released large numbers of class member claims in exchange for dubiously valuable 'coupons' to class members and exorbitant fee awards to plaintiff's lawyers.” Anderson and Schwing at 1. CAFA's provisions designed to increase judicial scrutiny of settlements include that in any proposed settlement involving coupons, the court may approve the settlement only upon a written finding that the proposed settlement is “fair, reasonable, and adequate for class members.” 28 U.S.C. ' 1712(e). CAFA also requires that notice of proposed class settlements be provided to certain state and federal officials, including the attorneys general of states in which any class member resides.

Anecdotal evidence concerning proposed settlements since CAFA's enactment suggests that CAFA is causing judges to reject class settlements with greater frequency than before. For example, in Figueroa v. Sharper Image Corp. , 517 F. Supp. 2d 1292 (S.D. Fla. 2007), the court denied approval of a proposed nationwide class settlement. Reflecting the impact of the notice required by CAFA to government officials, the court said, “What distinguishes this case from other class actions, however, is the singular appearance of the Attorneys General of thirty-five states and the District of Columbia, representing hundreds of thousands, if not millions, of eligible class members. Appearing as amicus curiae on behalf of their citizens, the Attorneys General have objected at every turn to each version of the parties' proposed coupon settlement.” Id. at 1328.

Whether the Figueroa decision is part of a growing trend in which courts reject proposed class settlements is an area for further study, and which could be answered by the next phase or phases of the FJC's study. Preliminarily, though, it appears that CAFA's provisions intended to guard against coupon settlements that have little value to class members has teeth.

Conclusion

The FJC study is notable for its conclusion that in the two years prior to CAFA's enactment, diversity jurisdiction class actions involved little litigation activity and did not have a large impact upon federal courts. However, it would be premature to draw from this conclusion that CAFA's future impact will be negligible upon the resources of federal courts because the FJC study did not include data from cases that did not reach a final disposition within the study's two-year time frame, did not include data from cases that were remanded but which are likely to remain in federal court under CAFA, and does not account for litigation concerning the interpretation and application of CAFA.

CAFA's provisions regarding judicial review of settlements have resulted in the rejection of at least some proposed settlements, a change from the two-year period studied in the FJC report. The FJC study also suggests that practitioners should not take class certification motions lightly, because such motions may have a significant impact upon settlement.

Completion of the FJC study will shed further light upon diversity jurisdiction class actions and the impact of CAFA upon the resources of the federal courts.

Beth L. Kaufman, a member of this newsletter's Board of Editors, is a partner at Schoeman, Updike & Kaufman, LLP, a certified women-owned law firm with offices in New York and Chicago. Jeremy Weintraub is counsel to the firm.