The Class Action Fairness Act and the Federalization of Class Actions

The Class Action Fairness Act of 2005 was the most significant change in class action practice since the 1966 amendment of Rule 23 and will have considerable impact on how attorneys structure and conduct class actions. CAFA is primarily a jurisdictional act, accomplishing the transfer to federal courts of most multistate class actions. It represented years of lobbying by business interests and should limit forum-shopping in target state courts for multistate class actions. Whether it goes too far in depriving state courts of jurisdiction over large areas of class actions was much debated, and its impact on state-court class actions is still to be seen. Although the three carve-outs (which are examined in light of case law applications), which are intended to preserve state-court jurisdiction over cases with paramount state interest, are limited, they are likely to result in more single-state, as opposed to multistate, class actions. The manner in which federal courts deal with the choice-of-law issue will be determinative of whether many multistate class actions can survive in federal courts. The act also places limitations on settlements and attorney's fees, but are partly duplicative of requirements already in Rule 23 and are relatively inconsequential, except for the burdensome requirement to notify government officials as to all settlements.