Debevoise & Plimpton

Handling state AG parens patriae actions after the Supreme Court’s rejection of federal court removal

By Mark P Goodman, Jeffrey S Jacobson, John S Kiernan, Maura K Monaghan and Erica S Weisgerber

The Supreme Court ruled unanimously last week, in Mississippi v AU Optronics Corp, No. 12-1036 (2014), that state attorney-general lawsuits seeking restitution for damaged consumers cannot be removed to federal court as ‘mass actions’ under the Class Action Fairness Act (CAFA). This decision is likely to encourage more of these parens patriae quasi-class actions, and even companies that think they stopped the class-action train with mandatory arbitration agreements may see the same kinds of claims asserted by state AGs on their residents’ behalf. With federal removal unavailable, companies must find alternative ways to manage these cases.

Federal courts may still have a role to play. A federal judge evaluating a class-action settlement has the power to order parallel state parens patriae actions stayed during the approval process, and then to release those claims, even over the AG’s objections, if they approve the settlement. AU Optronics did not disturb precedent for this. Thus, while a defendant ideally would negotiate a global settlement with all claimants at the same table, if that proves not to be feasible the defendant may be able to settle directly with a state AG’s constituents as putative class members in a federal case and thereby end the AG’s ability to prosecute a separate parens patriae action in state court. Even defendants that could compel private cases into arbitration may wish to keep this option in mind…

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