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January 15th, 2014

SCOTUS Invites New Wave of ‘Pay-to-Play’ Lawsuits

A unanimous U.S. Supreme Court yesterday overturned an appellate court decision that had been heralded as a needed check on so-called “pay-to-play” litigation, wherein state attorneys general hire their political supporters among the plaintiffs’ bar on a contingency-fee basis to prosecute often speculative lawsuits, using consumer-protection and anti-trust laws to target deep-pocket corporate defendants in plaintiff-friendly state courts.

Defendants will no longer be able to use the federal Class Action Fairness Act (CAFA) to move such state AG/contingency-fee lawyer litigation into more even-handed federal courts, so observers anticipate a wave of new lawsuits.

“In defense of the Justices, they have fairly interpreted the law that Congress wrote and President Bush signed in 2005,” said ATRA president Tiger Joyce. “If lawmakers wished to place CAFA restrictions on what, ostensibly, are the ‘mass actions’ brought by state attorneys general, they certainly could have and should have done so.

“In light of this high court decision,” Joyce continued, “and considering that these pay-to-play lawsuits often put the self-interest of profit-driven personal injury lawyers and reelection-seeking AGs above the public’s interest in achieving justice without scaring off the business investments needed for a healthy state economy, Congress should amend CAFA as part of a much talked about broader effort to stimulate private-sector economic growth and job creation.”

In Mississippi ex rel. Hood, Attorney General v. AU Optronics Corp. et al., Magnolia State AG Jim Hood had sued on behalf of thousands of consumers several makers of liquid crystal display screens for alleged price fixing. The defendants, citing a provision of CAFA that allows for mass actions brought by 100 persons or more to be moved from state courts to federal courts, sought to have Hood’s suit removed to federal court.

The U.S. Court of Appeals for the Fifth Circuit sided with the defendants, but Hood appealed to the Supreme Court and got his way. The case will now proceed in a friendly Mississippi trial court where Hood’s team will have every advantage.

The high court decision, written by Justice Sonia Sotomayor, said CAFA text defines a “mass action” as one involving monetary claims brought by 100 or more persons who seek to try those claims together as named plaintiffs.

But “[b]ecause the State of Mississippi is the only named plaintiff in the instant action, the case must be remanded to state court,” she wrote.

Archis Parasharami, co-chairman of Mayer Brown’s consumer litigation and class action practice, offered a different perspective to Marcia Coyle, writing for Litigation Daily: “When state attorneys general file lawsuits to seek monetary recoveries based on claimed injuries to private citizens, those lawsuits look like, walk like, and quack like class actions. In fact, in most of these so-called parens patriae cases, the same private plaintiffs’ lawyers that bring private class actions are retained to represent states in exchange for the potential to garner substantial attorneys’ fees.”

ATRA’s Joyce adds that, “When staff lawyers in an attorney general’s office are paid a straight salary by the state to prosecute lawsuits, their principal objective is justice in the public interest. But when private sector personal injury lawyers are hired by an attorney general on a contingency-fee basis, their principal objective is to wring from defendants the highest possible settlement or damages award — whether that’s in the public interest or not.

“It’s clearly not in the public interest when states develop reputations for anti-business litigiousness, like the one Jim Hood has helped develop for Mississippi, because businesses are then less likely to expand or relocate there. And Mississippi’s current 8.3% unemployment rate, the sixth worst in the nation, is ample proof of that.”

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