Do Federal Class Actions Compete Against Overlapping State Class Actions in a Race to the Courthouse?

Class Action Watch Winter 2002

January 1, 2002

In June 2001, the U.S. Judicial Conference's Standing Committee on Practice and Procedure considered several proposed changes to Fed. R. Civ. P. 23 that would potentially bring under federal court control state court class actions that involve the same claims and putative class members as class actions that are pending in federal court. One of these so-called "preclusion" proposals, an amendment adding Rule 23(c)(1)(D), would provide district court judges discretion to block, at least conditionally, class certification in parallel state court proceedings if they conclude, on a motion to certify or decertify the federal class, that class litigation is inappropriate under federal standards [1]. Another proposal would permit district judges to enjoin the named parties-and even absent class members-from bringing or pursuing litigation duplicative of the federal court proceedings in state court [2]. The Standing Committee declined to approve these proposals-primarily because of concerns over whether the proposals comport with the Rules Enabling Act, but also because the extent of the problem of competing federal court/state court class actions is not well-defined. Instead, the Standing Committee directed further review by the Advisory Committee on Civil Rules. To this end, the Advisory Committee has asked participants at a series of hearings addressed to other Rule 23 changes that have received the preliminary approval of the Standing Committee to come prepared to discuss the proposed "preclusion" additions to Rule 23 as well.

While anecdotal evidence of overlapping state and federal court class litigation involving the same claims abounds, researchers have been unable to capture how frequently this competition occurs in practice. Class Action Watch has recently attempted to answer this question by focusing on class action disputes that are significant enough to have come to the attention of the Judicial Panel on Multidistrict Litigation ("the MDL Panel"). Using those high-profile disputes to define a universe for research purposes, Class Action Watch has tapped a variety of sources of information-MDL Panel docket entries respecting actions removed from state court and proposed for consolidation but later remanded, newspaper reports of state court filings, and reports of counsel involved in the MDL proceedings themselves-to determine the extent to which federal court class action defendants are facing down competitive state court class actions as well.

The results of the analysis are not complete, but the preliminary numbers are provocative. Of the 50 most recent consolidated federal court class action proceedings constituted by the MDL Panel, Class Action Watch has been able to determine the statusof related state-court litigation with respect to 35 consolidated proceedings. Of those 35 consolidated federal proceedings, state court class action litigation involving the same underlying claims of injury, and all or some portion of the classes named in the federal actions, was or is pending in 19 of them. In mature MDL class action proceedings, where a year or more has passed since the initial petition for MDL consolidation (and where parallel state court class action actions have had a some reasonable chance to germinate), the numbers are even more striking: more than half of these proceedings face competition from state-court class action litigation.

Duplicative or overlapping discovery demands, races to class certification hearings, races to class judgments, and even purposeful evasion of federal-court class certification decisions are among the many problems and inefficiencies that these parallel actions can pose, often driving defendants to settle claims that would have no real chance of certification in federal court simply to remove the threat of a bet-the-company class trial in state court. The impact of this multiplicative litigation approach on behalf of the same putative plaintiffs is, in short, very real.

Over the next year, Class Action Watch will be examining the competing class action litigation bound up in these MDL proceedings in greater detail, looking at the timing of class certification hearings and orders, the extent to which conflicting rulings on important pre-trial matters have been issued by the federal and state courts involved in these proceedings, and the extent (if at all) to which the federal and state courts involved in these proceedings are coordinating discovery. The results of these inquiries will be reported in subsequent issues of Class Action Watch. Through this deeper evaluation, Class Action Watch hopes to provide useful information for scholars, judges and legislators as proposals for class action reform are considered. [TABULATION OF RESULTS PRINTED IN A TABLE]

1. The addition to Rule 23 would have specifically provided that "[a] court that refuses to certify-or decertifies-a class for failure to satisfy the prerequisites of Rule 23(a)(1) or (2), or for failure to satisfy the standards of Rule 23(b)(1), (2), or (3), may direct that no other court may certify a substantially similar class to pursue substantially similar claims, issues, or defenses unless a difference of law or change of fact creates a new certification issue."
2. Alternative proposals were floated to accomplish this result:
ALTERNATIVE 1: "(g)(1) Related Class Actions. When a member of a class sues or is sued as a representative party on behalf of all, the court may-before deciding whether to certify a class or after certifying a class-enter an order directed to any member of the proposed or certified class respecting [the conduct of] litigation in any other court [tribunal?] that involves the class claims, issues, or defenses."
ALTERNATIVE 2: "(g) Related Class Actions. (1) When a person sues or is sued as a representative of a class, the court may-before deciding whether to certify a class or after certifying a class-enter an order directed to any member of the proposed or certified class that prohibits filing or pursuing a class action in any other court that involves the class claims, issues, or defenses[, but the court may not prohibit a class member from filing or pursuing a state-court action on behalf of persons who reside or were injured in the forum state and who assert claims that arise under the law of the forum state]. In entering an order under this Rule 23(g)(1) the court must make findings that:
(A) the other litigation will interfere with the court's ability to achieve the purposes of the class litigation,
(B) the order is necessary to protect against interference by other litigation, and
(C) the need to protect against interference by other litigation is greater than the class member's need to pursue other litigation.
(2) In lieu of an order under Rule 23(g)(1), the court may stay its own proceedings to coordinate with proceedings in another court, and may defer the decision whether to certify a class notwithstanding Rule 23(c)(1)(A).
(3) The court may consult with other courts, state or federal, in determining whether to enter an order under Rule 23(g)(1) or (2).