February 18, 2005,
On February 18, 2005, President Bush signed the Class Action Fairness Act. The bill makes important changes to the rules determining the court in which a purported class action is heard.
The Class Action Fairness Act allows a defendant to remove a case to federal court upon a showing of "minimal diversity." It replaces the old rule that required complete diversity. "Minimal diversity" is defined as a case where one member of the purported class and one defendant are citizens of different states. The change effectively prevents the fraudulent joinder of local defendants in order to defeat complete diversity and prevent removal.
The minimal diversity rule applies in cases in which the class involves more than 100 people and the aggregate amount in controversy exceeds $5 million. The latter requirement effectively prevents plaintiffs from blocking removal by seeking damages of less than $75,000 per class member.
There are, however, exceptions to the new rule. A federal court may decline jurisdiction if more than one-third (but less than two-thirds)of the proposed class and the "primary defendants" are citizens of the forum state. A federal court must decline jurisdiction in two situations. First, if (i) more than two-thirds of the class are citizens of the forum state; (ii) at least one defendant whose conduct forms a "significant basis" for the claims and from whom "significant relief" is sought is a citizen of the forum state; (iii) the principal injuries occurred in the forum state; and (iv) during the three year period preceeding the filing of the class action, no other class action was filed asserting the same or similar factual allegations against any of the defendants. Second, a federal court must decline jurisdiction if two-thirds or more of the class and the primary defendants are citizens of the forum state.
Click this link for the full text of the Class Action Fairness Act.
