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     Over the past decade, there has been a growing concern that plaintiffs' lawyers increasingly filed large, national class actions in certain state court venues perceived to be very favorable to plaintiffs. These locations-including Madison County, Illinois; Jefferson County, Texas; and Palm Beach County, Florida-have been called everything from "magnet" jurisdictions to "magic" jurisdictions. Despite the fact that these class actions often involved plaintiffs from every state in the nation, and thus had a federal character, they could not be removed to federal court because of the "complete diversity" requirement. That is, every plaintiff had to be diverse from every defendant for federal jurisdiction to exist. A plaintiff's lawyer seeking to avoid federal jurisdiction could simply add a non-diverse plaintiff or one defendant from the forum state who could be dismissed from the case once the removal period lapsed. The recently enacted Class Action Fairness Act of 2005¹ aims to end such forum shopping and ensure that class actions of a national scope are litigated in federal court.
     In addition, the act reduces incentives for class settlements that provide little value (and may bring harm) to class members. The new law requires courts to take a hard look at "coupon settlements," where class members may receive a coupon toward the purchase of a new product while class counsel receives millions-in cash, not coupons. The law now requires that any contingency fee awarded to class counsel be based on the value of the coupons actually redeemed, often only 10 to 20 percent of the settlement's face value. Further, the law precludes net-loss settlements, where class members actually wind up in the hole after paying their attorney's fees, unless the court makes a written finding that nonmonetary benefits of the settlement outweigh the monetary loss to the class.
     When President Bush signed the Class Action Fairness Act into law on February 18, 2005, he proclaimed it "a critical step toward ending the lawsuit culture in our country."² While the act may stem certain perceived class action abuses, it is principally about "court reform," not "tort reform." It alters no substantive legal rights, does not limit damages, and closes the courtroom door to no one; it is a procedural statute that permits more interstate class actions to be heard in federal court and provides safeguards to ensure that class settlements adequately protect class members.³ The following are the key provisions of the new law.

Expansion of Federal Court Diversity Jurisdiction
     Before passage of the act, federal diversity jurisdiction over a class action generally did not exist unless every plaintiff was a citizen of a different state from every defendant. As a result, a class action involving thousands of alleged victims from across the country, millions of dollars in potential damages, and numerous defendants could not be litigated in federal court. The act seeks to "restore the intent of the framers of the United States Constitution by providing for federal court consideration of interstate cases of national importance under diversity jurisdiction...."⁴ To accomplish this goal, the act provides federal courts with original jurisdiction over class actions where the aggregate amount in controversy is above $5 million and where there is "minimal diversity"-i.e., any class member is a citizen of a different state than any defendant.⁵ However, to ensure that truly local disputes remain in state court, the act provides that the following cases will remain in state court:
     Small Class Action Exception: Class actions where the number of members in the proposed plaintiff class is fewer than 100
     State Entity Exception: Class actions in which a state government entity is the primary defendant against whom the district court may be foreclosed from ordering relief
     Primary Defendant's Home State Exception: Class actions filed in the state in which the "primary" defendants and at least two-thirds of the class members are citizens
     Local Controversies Exception: Class actions in which (1) greater than two-thirds of the class members are citizens of the forum state; (2) there is at least one in-state defendant whose conduct was a "significant" contributor to the alleged harm and from whom "significant" relief is sought; (3) the principal injuries occurred in the forum state; and (4) no other class action asserting similar claims has been filed against the same defendants within the last three years⁶
     In addition, federal courts have discretion to decline federal jurisdiction where greater than one-third but less than two-thirds of the class members and the primary defendants are citizens of the state in which the action was initially filed. In determining whether to exercise jurisdiction, district courts are to consider: (1) whether the claims involve matters of national or interstate interest; (2) whether the claims will be governed by the laws of the state in which the action was filed, or by the laws of other states; (3) whether the class action was pleaded to avoid federal court jurisdiction; (4) the forum state's nexus to the class members, the alleged harm, or the defendants; (5) the number of class members from the forum state as compared to the number of class members from any other state, and the dispersion of the remaining class members; and (6) the existence of any class actions raising similar claims within the preceding three years.⁷
     "Mass actions," in which the claims of at least 100 people are to be tried jointly because they involve common questions of law or fact, are to be treated as class actions and are subject to the act's provisions.⁸ However, federal jurisdiction will exist only over those plaintiffs whose claims satisfy the normal diversity jurisdictional amount requirement for individual actions (currently $75,000).⁹ Mass actions are covered by the act to ensure that plaintiffs' attorneys could not simply relabel their claims as "mass actions" to circumvent the act's provisions. However, Congress recognized valid reasons to maintain certain types of mass actions in state court, and thus carved out the following exceptions:
     Single Sudden Accident Exception: Claims arising from an event or occurrence in the forum state and resulting in injuries in that state or in contiguous states
     Joinder by Defendant Exception: Claims joined upon a defendant's motion
     General Public Exception: Claims asserted on behalf of the general public (not a class) pursuant to a state statute specifically authorizing such claims
     Case Management Exception: Claims consolidated or coordinated for pretrial proceedings only¹⁰
     Moreover, mass actions removed to federal court may not be transferred to another court under the multidistrict litigation procedure unless a majority of the plaintiffs request transfer, permitting plaintiffs to retain some control over where their cases will be heard.¹¹

Removal of Class Actions to Federal Court
     The act makes several important modifications regarding the procedure for removing state court actions to federal court. Class actions may now be removed to federal court even if one defendant is a citizen of the forum state. In addition, any defendant can remove without the remaining defendants' consent. Finally, the act eliminates the one-year limitation on removal to ensure that a sham in-state defendant is not added to the complaint merely to avoid removal.¹² While orders remanding cases to state court are ordinarily unreviewable, the act permits (but does not require) federal appellate courts to review district court decisions on motions to remand and provides a tight time frame (sixty days) to complete this appellate review.¹³

Consumer Class Action Bill of Rights
     The act also contains provisions aimed at various perceived class action settlement abuses, such as awarding counsel "large fees, while leaving class members with coupons or other awards of little or no value."¹⁴
     Coupon Settlements: Settlements that award coupons to class members may be approved by the court only after a hearing and written finding that the proposed settlement is "fair, reasonable, and adequate for class members." Attorneys' fee awards in coupon settlements must be based either on the amount of time reasonably expended by counsel or, for contingency fees, on the coupon amounts that class members actually redeem-often only a small percentage of the coupons provided. District courts have discretion to hear expert testimony regarding the actual value to class members of coupons received in an attempt to address the situation where the actual value of the coupons differs from their face value. Finally, the court may order that a portion of the unclaimed coupons' value be distributed to a charitable or governmental organization and that this distribution will not be used to calculate attorneys' fees. ¹⁵
     Net Loss Settlements: A court may approve a settlement under which a class member is obligated to pay class counsel more than he or she receives under the settlement only upon a written finding that the non-monetary benefits to the class member "substantially outweigh" the monetary loss.¹⁶
     Geographic Discrimination Prohibited: A court may not approve a settlement that provides greater sums to class members solely on the basis that they are located closer to the court. However, class members can receive differential compensation because they were injured in different manners or to different degrees. ¹⁷
     The law also requires that notice of a proposed settlement be provided to certain federal and state officials to permit their intervention and participation in approving the settlement.¹⁸

Areas to Watch
     In the next few years, we will likely see a great deal of litigation over the interpretation of the act. In particular, courts will have to grapple with how to determine the percentage of class members that are citizens of the forum state, as this is essential to determining whether an action belongs in federal or state court. Since a class, by its nature, includes unnamed individuals, courts will presumably be forced to make this determination based on a hearing regarding the likely number and location of class members. Likewise, courts will be called upon to determine whether the defendants that are citizens of the forum state are "primary" defendants or, alternately, whether at least one defendant is a "real" defendant who "significantly" contributed to the alleged harm and from whom "significant" relief is sought. This process could add substantial delays and will likely result in divergent decisions from numerous trial and appellate courts before any consensus is reached.
     Because this act will bring the majority of nationwide class actions into federal court, another area of litigation will likely involve how the applicability of multiple state laws will impact class certification determinations. For example, if plaintiffs from ten different states are injured by an allegedly unfair trade practice, the federal court will need to conduct a choice of law analysis for each group of plaintiffs, based on the forum state's conflict of law rules, to determine which states' laws apply to the claims. The court could easily conclude that ten different state laws apply. In the past, some federal courts declined to certify proposed classes involving multiple state laws, finding these classes unmanageable under Rule 23. Recognizing this issue, a proposed amendment to the act would have precluded federal courts from refusing to certify class actions solely because multiple state laws were involved. However, this amendment was defeated because some of the act's proponents feared that the amendment would gut the new law. ¹⁹
     Finally, one provision of the act in particular may fundamentally alter the settlement of class actions. Under the act, all proposed class action settlements must be served upon the "appropriate" state official of each state in which a class member resides and the "appropriate" federal official no later than ten days after the proposed settlement is filed in court.²⁰ In many, if not most, circumstances, these officials will be the state attorneys general and the United States attorney general, although in the case of regulated or licensed entities the state official will be the person in that state with "primary regulatory or supervisory responsibility with respect to the defendant, or who licenses or otherwise authorizes the defendant to conduct business in the State...."²¹ Quite apart from the potential for additional investigations or suits by the states or the federal government under their respective enforcement statutes, the appropriate state or federal official(s) may also seek to intervene in the matter, or, at a minimum, comment upon the proposed settlement. Indeed, a court may not approve a proposed settlement earlier than ninety days after service of the proposed settlement upon the appropriate governmental officials.²²
     Needless to say, myriad possibilities arise from such potential intervention or comment, including a claim that the Rule 23 class action may not be superior to an action brought by the state.²³ It will be most interesting to see whether this provision of the act forces settling parties in some instances to seek prior clearance of the proposed settlement from the applicable state attorney(s) general before filing the settlement documents with the court. •

ENDNOTES
1. Class Action Fairness Act of 2005, Pub. L. No. 109-02 (2005) (hereinafter     "act").
2. Press Release, White House, President Signs Class-Action Fairness Act of     2005 (Feb. 18, 2005) available at     http://www.whitehouse.gov/news/releases/2005/02/20050218-11.html.
3. The act does not apply to pending lawsuits; rather, it only applies to those civil     actions commenced after the date of enactment (i.e., after February 18, 2005).
4. Act, Sec. 2(b)(2).
5. Id. at Sec. 4(a)(2)(A).
6. Id. at Sec. 4(a)(4)-(5).
7. Id. at Sec. 4(a)(3).
8. Id. at Sec. 4(a)(11)(A)-(B).
9. Id. at Sec. 4(a)(11)(B)(i).
10. Id. at Sec. 4(a)(11)(B)(ii)(I)-(IV).
11. Id. at Sec. 4(a)(11)(C)(i).
12. Id. at Sec. 5(a), § 1453(b).
13. Id. at Sec. 5(a), § 1453(c)(1)-(2).
14. Id. at Sec. 2(a)(3)(A).
15. Id. at Sec. 3(a), § 1712.
16. Id. at Sec. 3(a), § 1713.
17. Id. at Sec. 3(a), § 1714.
18. Id. at Sec. 3(a), § 1715.
19. 151 Cong. Rec. S1166-84 (Feb. 9, 2005) (debate regarding proposed      amendment).
20. Act, Sec. 3(a), § 1715(b).
21. Id. at Sec. 3(a), § 1715(a)(2). Note that the terms primary, supervisory, and      otherwise authorizes are far from clear.
22. Id. at Sec. 3(a), § 1715(d).
23. See, e.g., 5 James Wm. Moore et al., Moore's Federal Practice, § 23.46[2][c]      (3d ed. 2004); Kamm v. California City Dev. Co., 509 F.2d 205, 211-13 (9th Cir.      1975).