Part two of our series on competing class actions will address strategies intended to “corral” multiple cases: venue transfer under the federal forum non conveniens statute, and seeking multidistrict litigation (MDL) consolidation. Such strategies, while not necessarily eliminating competing cases, can be useful in lodging such cases in fewer forums, often resulting in discovery and other efficiencies for the defendant. Such strategies, in particular MDL consolidation, are not without downside, however.

Transfer of Venue

Dealing with Competing Class Actions, Part Two – Venue Transfer and MDL ConsolidationComplementing the first-filed rule and similar state court principles (addressed in our last post) are the transfer of venue tools available both in the federal system and in most state systems. Transfer of venue pursuant to 28 U.S.C. § 1404(a) is at the discretion of the court, considering all relevant factors to determine whether or not on balance the litigation would more conveniently proceed and the interests of justice be better served by transfer to a different forum. The factors normally considered under this discretionary venue transfer statute include a number of private and public interest factors, none of which is given dispositive weight.

While the plaintiff’s choice of forum is also normally accorded some weight, numerous courts have said that it is accorded less weight when the suit is brought as a class action, partly because the interests and convenience of the class as a whole are at stake. Moreover, courts have frequently found that the pendency of a prior similar action in the proposed transferee forum strongly militates in favor of a 1404(a) transfer. A recent amendment to 28 U.S.C. allows a court to transfer even to a venue where the action could not have been filed originally if all parties consent. Otherwise, transfer is only available under 1404(a) if the proposed transferee forum is one in which venue would have been proper. Most states, by statute or rule of civil procedure, have transfer or dismissal options under principles similar to those of § 1404(a).  

Venue transfers of class actions can be an effective response to competing or overlapping actions, particularly if transfer to a district in which one or more cases are already pending can be obtained. Often the next step in such a strategy will be to seek consolidation of all cases pending in that district, which again can result in significant efficiencies in the litigation, as well as the avoidance of inconsistent rulings.

MDL Consolidation

Dealing with Competing Class Actions, Part Two – Venue Transfer and MDL ConsolidationAnother option available to a defendant facing competing class actions with overlapping issues is to seek a transfer and pretrial consolidation of all cases into multidistrict litigation (MDL) pursuant to 28 U.S.C. § 1407. Unlike the first-filed rule of comity, substantial identity of parties is not required. The mere presence of one or more common issues is enough.  Also, unlike a motion under the first-filed rule, a motion for transfer to MDL is not ruled upon by any of the judges assigned to any of the pending class actions. In contrast with a 1404(a) transfer motion, whether the forum chosen for pretrial MDL consolidation is a venue in which each of the actions could have been filed originally is not an issue. And unlike the “race-to-judgment” strategy, the object of MDL treatment is to bring all cases together for coordinated discovery and pretrial proceedings, including determination of class certification issues.

28 U.S.C. §1407 provides that, “[w]hen civil actions involving one or more common questions of fact are pending in different districts, such actions may be transferred to any district for coordinated or consolidated pretrial proceedings.” The decision on whether to order MDL treatment with respect to overlapping actions is made by the Judicial Panel on Multidistrict Litigation (JPML), based upon considerations of public and private convenience and efficiency. Cases transferred for MDL treatment are transferred and consolidated for pretrial purposes only, and must each be remanded to the original forum for any trial.

Whether the JPML will grant MDL treatment depends in large part on the number of overlapping actions facing the defendant. In general, the fewer the number of overlapping cases, the more complex the common issues will have to be to justify MDL treatment. MDL transfer is also more likely when cases are young than when they are nearing trial.

There is no way for a defendant to know for certain what judge will end up with the MDL if multidistrict transfer and consolidation are granted. Where cases are pending and which are further along are certainly factors, as are the preferences of the parties, but factors such as relative court congestion, the experience of potential judges with MDLs generally and the subject matter at issue in particular, and the geographic proximity of the potential forum to key evidence and witnesses are all considered as well. Although the forum chosen does not have to be a forum where any of the actions was originally filed, over 90 percent of the time it is. Daniel A. Richards, An Analysis of the Judicial Panel on Multidistrict Litigation’s Selection of Transferee District and Judge,  78 Fordham L. Rev. 311, 331 (2009).

MDL treatment affords several advantages for the defendant:

  • It has the potential to lessen the overall costs of defense of a multiplicity of litigation.
  • It avoids inconsistent rulings on pretrial matters, discovery, dismissal and summary judgment motions, and class certification.
  • It brings all relevant players to the same bargaining table for purposes of settlement, and thereby enhances the prospects for an effective global resolution of the controversy.
  • Counsel for all plaintiffs are forced to coordinate their discovery efforts, so that the defendant does not have to deal with an endless series of different but overlapping discovery requests in each case, nor tender the same witnesses for deposition multiple times. This can substantially reduce the disruption of the defendant’s business.

At the same time, MDL treatment also carries disadvantages:

  • Plaintiffs’ counsel forced to pool their resources often become a much more formidable collective adversary than the individual counsel would be if left to fend for themselves.
  • Collectively, the combined mass of a large number of plaintiffs tends to enhance the leverage exerted, even by claims with relatively questionable merit.
  • Among the  consequences of this are that discovery often proceeds at a much faster pace, and discovery battles often become more difficult for the defendant to win, because any given discovery request is more likely to be relevant in some respect when several different cases are at issue than when there is only one. Consequently, the promise of overall cost savings that led the defendant to seek MDL treatment in the first place can often vanish in an ever-expanding quagmire of broadened discovery.
  • MDLs also tend to generate publicity and a large amount of “copycat” or “tagalong” litigation that might not otherwise have been filed.
  • Finally, cases not originally filed in the MDL court must be tried in the transferor courts in which they were originally filed, rather than in the MDL transferee court.
  • All of these factors combine to result in an increased likelihood that the end result of the litigation in an MDL setting will be a class action settlement.

Our last post in this series will address the rare – though still potentially possible – strategy of enjoining the prosecution of a competing class action.

7th Circuit Affirms Plaintiff’s Own Estimates of Class Size Can Satisfy CAFAIn Roppo v. Travelers Commercial Insurance Company, the Seventh Circuit held that even after a motion to remand CAFA removal jurisdiction can be sufficiently established by a defendant’s “good faith estimates” of the amount in controversy based on the number of class members plaintiff had alleged in the complaint. The lawsuit challenged Travelers’ alleged practice of not disclosing the existence of umbrella policies in settlement discussions. The complaint alleged that there were at least 500 members of the Illinois-only class. Nevertheless, the plaintiff argued that once removal was challenged, the burden fell on the defendant to prove with independent evidence the actual number of class members, or at least that the size of the class exceeded CAFA’s minimum of 100. The Seventh Circuit disagreed, even while acknowledging that although a defendant’s mere good faith allegation of the amount in controversy will suffice in the notice of removal, more proof is generally required from the defendant once the plaintiff challenges that jurisdictional allegation (see Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S. Ct. 547, 554 (2014)). Specifically, the court found that the duties of candor and due diligence associated with filing a complaint under the Illinois analogue of Rule 11 made reliance on class size estimates contained in a complaint permissible and probative even after the plaintiff challenged the propriety of CAFA removal. Thus, the complaint’s allegation that the class was comprised of at least 500 members, combined with an affidavit from Travelers that its minimum umbrella face amount was $1 million, was enough to carry the day jurisdictionally, especially given the complaint’s further allegation that insurance limits were the “de facto cap” on the personal injury cases placed at issue in the complaint. The court went on to affirm dismissal of the complaint for failure to state a claim.

Multiple actions involving the same subject matter and the same defendant are a common feature of the U.S. class action landscape. In this series of blog posts, we’ll examine the problem of competing class actions, which presents a variety of challenges and options for the defendant. There is no one-size-fits-all response, but knowing the tools available will give defense counsel and the defendant the best opportunity to tailor a successful strategy to deal with a multiplicity of class litigation involving overlapping or repetitive claims.

Race to Judgment

Dealing with Competing Class Actions, Part One – Race to Judgment and First-to-File RuleOne option, of course, is to simply defend each action separately. In this scenario, the first action to reach judgment on the merits, whether by settlement or litigation, will generally be conclusive as to all class members despite any competing litigation that remains pending, by virtue of res judicata and claim preclusion principles and the Full Faith and Credit Clause of the United States Constitution. It should be noted that the preclusive effect of the first judgment may well depend on how close the overlap is between the classes and claims asserted in the two actions.

The preclusive effect of settlement creates an undeniable incentive among competing class counsel to be the first to reach settlement. Critics of this phenomenon argue that it undercuts the interests of class members by setting up opportunities for a defendant to pursue a so-called “reverse auction,” forcing class counsel to bid against each other to see who is willing to offer the cheapest overall class settlement. From the defense perspective, simultaneous negotiation with class counsel in multiple cases is inadvisable, and can lead to unnecessary difficulties in obtaining approval of the resulting settlement in the face of inadequate representation claims and other objections by counsel with whom settlement is not reached. However, the fact remains that a defendant facing numerous class actions has strong express or implied bargaining leverage with whichever set of counsel the defendant chooses to negotiate: Be the first to cut a deal, class counsel, or risk being left out entirely.

This leverage is certainly not unchecked. All requirements of Fed. R. Civ. P. 23 other than manageability must still be satisfied by whatever settlement is reached, and the settlement must still be found fair and reasonable to the class on independent review by the trial court after the class is provided with the best practicable notice and the opportunity to object (see Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997)). The settlement must also survive any appeal, and would-be class counsel whose cases are being settled out from under them are highly likely to appeal. To avoid this, defendants sometimes try to bring all would-be class counsel into the settlement by agreement once a deal has tentatively been struck with one set of class counsel.   Further, it is not unheard of for courts in first-filed class actions to enjoin settlements, or even settlement negotiations, in subsequently filed class actions, though the scope of their authority to do so is far from settled.

The “race to judgment’ scenario has shortcomings. If class settlement is not the client’s goal, the defendant’s ability to control which case goes to judgment first can be quite limited.  Often, the cases in the venues that are the worst from the defendant’s perspective are the cases that are put on the fastest tracks by plaintiff-friendly judges. Moreover, the cost of defending multiple class actions at once can be prohibitive for all but the largest defendants. Worse yet, defeating class certification in one jurisdiction will generally not have preclusive effect in another jurisdiction, particularly as between state and federal court class actions, a subject we will discuss later in this series  (see Smith v. Bayer, 131 S. Ct. 2368, 2381-82 (2011)).

First-to-File Rule

Where the competing class actions are each within the same state or are each filed in or removable to federal court, traditional principles of comity between courts can often provide an opportunity to effectively limit the litigation to the first-filed case, or at least consolidate all of the litigation before the judge with the first-filed case. How attractive this option is will depend, of course, on the defendant’s evaluation of the desirability of the venue and trial judge in the first-filed case.

First, there is a longstanding rule of comity whereby a federal court in which a substantially identical action is filed has discretion to stay, dismiss or transfer the second-filed action in deference to the first-filed action. This is known as the “first-to-file” or “first-filed” rule (see, e.g., Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180 (1952)). The rule provides that when actions involving nearly identical parties and issues have been filed in two different district courts, the court in which the first suit was filed should generally proceed to judgment. The potential use of the rule is less settled when one action is pending in state court. However, the Class Action Fairness Act (CAFA) and the Securities Litigation Uniform Standards Act (SLUSA) now make it easier to get most class actions removed to federal court than once was the case, mitigating this problem to a large degree.

Most states have similar principles of comity among courts of equal jurisdiction which, as a matter of jurisdiction, discretion or statute, can give precedence to the court first seized of jurisdiction.

In subsequent posts, we’ll address other strategies for dealing with competing class actions, including venue transfers, MDL consolidation, and anti-suit injunctions.