The U.S. House of Representatives on Thursday passed two bills that would reform the standards for bringing federal class actions and raise the bar for keeping lawsuits in state courts.

The first bill, the Fairness in Class Action Litigation Act of 2017 (HR 985), would impose several new requirements on class action and multidistrict litigation proceedings in federal courts.  Among other things, the new requirements would include:

  • Class action plaintiffs seeking to recover monetary relief for personal injury or economic loss would be required to demonstrate that each class member suffered the “same type and scope of injury” as the named class representatives;
  • An attorney would be prohibited from representing a class in which any of the attorney’s relatives is a member;
  • Class counsel would be prohibited from recovering fees until after any monetary recovery to class members has been distributed;
  • “[A]ll discovery and other proceedings” in class actions would be automatically stayed during the pendency of any motion to transfer, motion to dismiss, motion to strike class allegations, or other motion to dispose of the class allegations, except to the extent the court finds it necessary that the parties take “particularized discovery” to preserve evidence or prevent undue prejudice;
  • Class counsel would be required to disclose any third-party funding agreement; and
  • Courts of appeal would be required to permit appeals from orders granting or denying class certification.

The second bill, the Innocent Party Protection Act (HR 725), would amend the standards for courts to find that a defendant that shares citizenship with one of the plaintiffs has been fraudulently joined to the case to prevent removal to federal court on the basis of diversity jurisdiction.  Under the bill, the joinder of such a defendant would be found to be fraudulent if, among other things, the claims against the defendant are clearly barred by state or federal law or “objective evidence clearly demonstrates that there is no good faith intention to prosecute the action against that defendant.”

The House is likely to vote on a number of other proposed tort reform measures in the coming weeks.  Notably, on Friday, March 10, 2017, the House is due to vote on the Lawsuit Abuse Reduction Act of 2017 (HR 720), which would require judges to impose monetary sanctions against attorneys who file frivolous cases in federal courts.

The Federal National Mortgage Association (Fannie Mae) operates under a corporate charter, which authorizes Fannie Mae “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal.” 12 U.S.C. § 1723a(a). On January 18, the U.S. Supreme Court held that this “sue-and-be-sued” clause does not independently grant federal courts subject-matter jurisdiction over all cases involving Fannie Mae.  Instead, the Court (in Lightfoot v. Cendant Mortgage Corporation) held that the clause merely permits Fannie Mae to participate in a suit in any state or federal court that is already endowed with subject-matter jurisdiction over the suit.

The case arose when a mortgage borrower sued Fannie Mae in state court alleging deficiencies in the refinancing, foreclosure, and sale of her home.  Fannie Mae removed the case to federal court, citing the sue-and-be-sued clause as the basis for federal jurisdiction.  The district court denied a motion to remand the case back to state court, and the U.S. Court of Appeals for the Ninth Circuit affirmed that decision.  The Supreme Court agreed to hear the case to resolve a split between the circuits.

On appeal, Justice Sotomayor, writing for a unanimous Supreme Court, explained that the Court had previously addressed the jurisdictional reach of sue-and-be-sued clauses in five other federal charters.  In those cases, the Court had stated that a clause gives rise to federal court jurisdiction if, but only if, it specifically mentions the federal courts.  Fannie Mae’s sue-and-be-sued clause specifically mentions federal courts, but also includes the phrase “any court of competent jurisdiction.”  The Court found that this qualification limited the jurisdictional reach of the clause to any court with an existing source of subject-matter jurisdiction.  Accordingly, the Court held that Fannie Mae’s sue-and-be-sued clause does not grant federal jurisdiction over any case involving Fannie Mae, but instead permits suit in any state or federal court that already has subject-matter jurisdiction.

Accordingly, under Lightfoot, Fannie Mae will no longer be able to remove a case to federal court citing only its charter’s sue-and-be-sued clause.  Instead, in order for a case involving Fannie Mae to be brought in federal court or removed to federal court, there must be an independent source of diversity or federal-question jurisdiction.

New regulations under the federal Military Lending Act (“MLA”) that become effective next week will prohibit consumer loans to covered US Service members if those loans have a “military annual percentage rate” (“MAPR”) greater than 36 percent. The Defense Department’s regulations will impose that MAPR limit on additional types of consumer credit transactions (beyond just payday, vehicle title, and tax refund anticipation loans) to active duty members of the armed forces and their spouses/dependents. The regulations will also change how a lender may determine whether applicants are “covered borrowers” and modify the disclosures required for those borrowers.

The MLA’s enforcement provisions include criminal and civil liability for noncompliance and provide for a private right of action.

Read more about the new regulations in Mayer Brown’s Legal Update.

The controversial decision in Madden v. Midland Funding, LLC, was “incorrect” and “reflects an unduly crabbed conception of [National Bank Act] preemption,” said the Solicitor General and the Office of the Comptroller of the Currency (“OCC”) in the amicus brief filed with the United States Supreme Court on Tuesday.  Still, the Solicitor General and the OCC advised the Court not to review the decision of the Second Circuit in Madden.  They concluded that this just isn’t the right case for the Court to resolve the important questions of whether and under what circumstances the National Bank Act preempts state usury laws for assignees of loans made by national banks. Continue Reading Madden Update: Solicitor General Says the Second Circuit Got it Wrong—But that the Decision Should Still Stand for Now

Today, the Supreme Court issued its long-awaited decision in Spokeo, Inc. v. Robins.  In a win for the business community, the Court held that plaintiffs can’t satisfy Article III’s injury-in-fact requirement for standing to sue in federal court by merely alleging the violation of a statute, without any accompanying real-world injury.  For more details on the decision, which arose based on claims brought under the Fair Credit Reporting Act, please see the report by my colleagues, who represented Spokeo before the Supreme Court.

A key question in enforcing arbitration agreements in class actions is whether arbitration will proceed on an individual or class basis.  But who will answer that question – the court or the arbitrator?  The Fourth Circuit recently held that, absent clear and unmistakable language in the arbitration agreement to the contrary, that threshold question about the availability of class arbitration is for the court to decide.  For more about the Fourth Circuit’s decision (and why it’s a win for businesses invoking arbitration agreements), see the report on Mayer Brown’s Class Defense blog by my partners Archis A. Parasharami, Kevin Ranlett, and Charles E. Harris II.