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Tue, 10 Oct 2006 12:42:26 EDT

By Marcia Coyle

The National Law Journal

10-10-2006

The Class Action Fairness Act of 2005 has had a swift and significant impact on the nature of class actions filed in, or removed to, federal court -- including a sharp increase in contract and tort class actions, according to a recent report by the Federal Judicial Center.

"I was surprised that the impact happened so soon," said senior researcher Thomas E. Willging of the center, the research arm of the federal judiciary. "Often it takes time for a law's impact to play out. But we saw it in just four and a half months after the effective date. This was particularly dramatic."

The Class Action Fairness Act (CAFA) gives federal courts jurisdiction over class actions in which the aggregate value of the claims exceeds $5 million, there are at least 100 class members and any member of the plaintiff class is a citizen of a state different from any defendant. But federal courts do not have jurisdiction where two-thirds or more of the class members and primary defendants are citizens of the state in which the action was originally filed.

The center is conducting a long-term study of the law's impact on the resources of the federal courts. In a September report to the Advisory Committee on Civil Rules of the Judicial Conference of the United States, the center presented preliminary data on the number, frequency and types of class action filing and removal activity in the federal district courts from July 1, 2001, through June 30, 2005 -- a time that spans the Feb. 18, 2005, effective date of the act.

Data from 85 federal district courts in the study showed:

Class action filings in, or removals to, federal district courts post-CAFA brought class action activity to its highest level during the four-year period. Class actions were filed at a rate of 10.48 cases per filing day before CAFA (July 1, 2001, through Feb. 17, 2005), and 11.96 cases per filing day after CAFA went into effect.

Increases in class action activity during the post-CAFA period occurred primarily in the categories of suits likely to include state-law claims: contracts, torts (almost entirely in property damage and not in personal injury cases) and "other fraud" cases (about half of which were based on diversity jurisdiction-many were filed originally in state courts).

For more than 3 1/2 years before CAFA, contract cases made up only about 10 percent of all class actions. In the 4 1/2 months after CAFA, contract cases made up 14.5 percent of class actions.

"If this trend continues, federal courts will be coping with more contract class actions than in the past," said the report.

After CAFA, cases removed from state courts increased from 18 percent of all class action activity to 23 percent of such activity.

After CAFA, cases based on diversity-of-citizenship jurisdiction increased from 13 percent of all class action filings and removals to 19 percent of such cases.

Since presenting the preliminary data, Willging said the center has done some additional analysis which suggests "a larger impact than anyone anticipated."

There were predictions that CAFA might bring about 300 class actions per year into the federal courts, he said. "But our best estimate, which is not in the report, is it has already brought in cases at a rate of 360 per year, and there are reasons to think those data will be on the low side."

The center's next report, analyzing the period from July 1, 2005, through June 30, 2006, will be issued in the spring of 2007. It also will examine a sample of case files to determine whether attorneys are filing more cases with state-law claims as original actions in federal courts.