COURT
INVOLVEMENT AND INTERVENTION
Transfer, Coordination, and
Consolidation of Similar Cases
Overview
Commercial litigation misuses the resources of federal
courts and parties if it proceeds in an inconvenient place or duplicates
litigation elsewhere. Individual parties
may, from their own perspective, have good reasons for imposing such costs on
the system; they may find the venue easier to get to, less likely to move their
case slowly, more favorable to their substantive legal position, or otherwise “better”
for them.[1]
The system as a whole discounts these individual
preferences. The system as a whole
desires to achieve overall efficiency
in dispensing civil justice, and it pursues that goal primarily by moving cases
around or, at the least, trying to coordinate them, as the next three sections
illustrate. These transfer and
coordination devices offer important ways to expedite and streamline.
Transfer
of venue
Under 28 U.S.C.A. §§ 1404(a) and 1406, one federal court may
transfer a case to another. Section
1404(a) provides that, “[f]or the convenience of parties and witnesses, in the
interest of justice, a district court may transfer any civil action to any
other district or division where it might have been brought.” It authorizes transfer even if the transferor
court has proper venue over the case.[2] Section 1406, on the other hand, requires
lack of proper venue in the transferor court and allows dismissal as an alternative
to transfer, providing that “[t]he district court of a district in which is
filed a case laying venue in the wrong division or district shall dismiss, or
if it be in the interest of justice, transfer such case to any district or
division in which it could have been brought.”
Sections 1404(a) and 1406 allow a party to ask the court to
send the case to a forum the party prefers.
A lot of things can make a forum unfavorable or preferable to the
party—the judge’s leanings, controlling law in the forum circuit,[3]
characteristics of jury venires, proximity of the forum to the party and
its witnesses, the forum’s familiarity to the party and its lawyers, community
attitudes towards the parties, and the historical performance of the forum in
pushing cases to resolution,[4]
among other factors. The party who
concludes that these considerations favor moving to transfer must then carry
the burden of establishing, in the case of a section 1404(a) motion, clear
convenience advantages of the transferee court[5]
and, for a motion under section 1406, that venue properly lies in the
transferee court but not in the forum court.[6] File the motion early to get the most
advantage from it.
Multidistrict
litigation
The challenges of overlapping lawsuits in two or more federal
districts prompted Congress in 1968 to enact 28 U.S.C.A. § 1407. The statute authorized appointment of a
special group of federal judges—the seven-member judicial panel on
multidistrict litigation[7]
and empowers the panel to transfer all federal actions “involving one or more
common questions of fact” to a single federal judge for “coordinated or
consolidated pretrial proceedings.”[8] The panel must first make a “determination
that transfers for such proceedings will be for the convenience of parties and witnesses
and will promote the just and efficient conduct of such actions.”[9] The transferee court generally must remand
the cases, after completion of pretrial proceedings, to the court or courts
they originated in for trial.[10] The parties may, of course, waive the right
to remand.[11]
Section 1407 does a lot to further the goals of Rule 1 of
the Federal Rules of Civil Procedure, at least on a system-wide basis. Individual litigants concerned about delay
and cost may resist transfer for consolidation or coordination with other cases
under section 1407.[12] As with venue transfers under sections 1404
and 1406, the benefits of centralizing overlapping cases generally accrue to
federal courts as an institution. The system achieves the just, speedy,
and inexpensive determination of the cases—not the parties or their counsel.
But parties also may get huge efficiency gains from section
1407 transfers. The filing of similar
cases in different district courts means the parties take the same discovery,
conduct the same motion practice, and try the same issues over and over
again. Particularly in multidistrict
cases involving hundreds or thousands of individual claims, duplication can
easily cost $1 million and may even run more than $10 million.[13]
The same efficiency considerations that go into deciding
whether to file transfer motions under sections 1404(a) and 1406 apply to
section 1407 motions. In most instances,
the gain in efficiency to defendants will dwarf any tactical advantages to them
of litigating similar cases separately.[14] (Another downside to a case-by-case strategy
is that collateral estoppel may prevent the defense
from relitigating common questions of fact in all
similar lawsuits, turning a small defeat into a huge loss.[15]) Many plaintiffs, on the other hand, believe
that section 1407 transfers not only deprive them of their forum choice but
also bog them down in the bureaucracy of a multidistrict litigation matter.[16]
As a result, plaintiffs will
rarely file a motion under section 1407 except to counter one by defendants.[17]
A crucial decision in section 1407 proceedings is which
transferee court to choose. The panel
has tremendous discretion in selecting the transferee court and judge and
rarely grants lawyers more than a few minutes to argue at the panel’s periodic
sittings. Most litigants therefore
concentrate on the factors that will make their preference most attractive to
the Panel.
Cases
in state court
The bane—or boon, depending on your perspective—of parallel
multi-party cases in state and federal courts lost much of its potency with
enactment of Public Law 109-2 in February 2005.
The new statute vastly expands the ability of defendants to remove class
action and mass action cases from state courts to federal courts.[18] An important consequence of the law, at least
in the short run: More cases for the judicial panel on multidistrict litigation
to centralize for pretrial purposes.
Removal under Public Law 109-2 will probably help defendants
and the state and federal courts overall resolve related commercial litigation
more efficiently and faster. Removing
eligible cases to federal courts will permit transfer under sections 1404,
1406, and 1407 and consolidation or coordination of the cases with other civil
actions involving one or more common fact questions.
Handling cases that overlap factually in two different court
systems increases the difficulty of coordination and therefore raises the
overall costs of the litigation. The Manual
for Complex Litigation recommends efforts to achieve coordination between
state and federal courts.[19] Federal courts, moreover, have become more
aggressive about enjoining parallel state court cases that they believe
interfere with their exercise of federal jurisdiction.[20]
Defendants
who face parallel state and federal court lawsuits should give careful
consideration to removing the state cases to federal court and, failing that,
to seeking an injunction that directs the plaintiffs not to proceed with their
state court cases. Coordination is also
a possibility but still is more wasteful than having all the cases in one
federal court.
[1] Parties may also pursue less worthy strategies,
including choosing a venue for its inconvenience to the other side or for its
pokiness.
[3] Under section 1404(a), the forum circuit’s interpretation of state law issues continues to govern even after transfer to a district court in another circuit. E.g., Ferens v. John Deere Co., 494 U.S. 516, 519 (1990); Van Dusen v. Barrack, 376 U.S. 612, 639 (1964); Sheldon v. PHH Corp. 135 F.3d 848, 852 (2d Cir. 1998) (“[W]hen a case has been transferred pursuant to 28 U.S.C. § 1404(a), even on the plaintiff’s own motion, a court will apply the law of the transferor forum, including that forum’s choice of law rules.”); Boardman Pet., Inc. v. Federated Mut. Ins. Co., 135 F.3d 750, 752 (11th Cir. 1998). “If instead a transfer is made from an improper venue to a proper one, pursuant to 28 U.S.C. § 1406(a), the district court receiving the case ‘must apply the law of the state in which it is held rather than the law of the transferor district court.’” Iannello v. Busch Entertainment Corp., 300 F. Supp. 2d 400, 402 (E.D. Va. 2004) (quoting Myelle v. Am. Cyanamid Co., 57 F.3d 411, 413 (4th Cir. 1995) (citation omitted). As to federal law issues, including questions of procedure, the transferee court applies the law of its own circuit. E.g. Hartline v. Sheet Metal Workers’ Nat’l Pension Fund, 201 F. Supp. 2d 1, 3-4 (D.D.C. 1999) (explaining In re Korean Air Lines Disaster of Sept. 1, 1983, 829 F.2d 1171 (D.C. Cir. 1987)).
[4] The District of Hawaii had the worst median time to disposition—72.6 months—while the Western District of Wisconsin had the best—6.0 months—during the year ending in March 2004. See http://www.uscourts.gov/caseload2004/tables/C05Mar04.pdf. Although the performance of most courts varies far less than the 66.6-month difference between those two courts, prudent lawyers will check the statistics of the forum court and judge against those of potential transferee courts and judges before recommending whether or not to seek a transfer of venue.
[5] E.g., In re Volkswagen AG, 371 F.3d 201, 203-06 (5th Cir. 2004) (issuing writ of mandamus directing district court to grant motion to transfer under section 1404(a)).
[6] E.g., World Skating Federation v. Int’l Skating Union, 357 F. Supp. 2d 661, 666-67 (S.D.N.Y. 2005) (granting dismissal under section 1406).
[7] See generally Chapter 11 “Multidistrict Litigation”.
[8] 28 U.S.C.A. §1407(a).
[9] 28 U.S.C.A. §1407(a).
[10] Lexecon Inc. v. Milberg Weiss Bershad Hynes
& Lerach, 523
[11] In re Carbon Dioxide Industry Antitrust Litig., 229 F.3d 1321, 1326-27 (11th Cir. 2000) (holding
that plaintiffs waived right to remand to transferor court and distinguishing Lexecon).
[12] For an example of defendants opposing transfer, see
In re Not-for-Profit Hospitals/Uninsured Patients Litig.,
341 F. Supp. 2d 1354 (J.P.M.L. 2004).
[13] Mega-cases are not rare. As of May 10, 2005, the In re Asbestos Products Liability Litigation alone included 33,679 pending actions, and well over 300 consolidated, coordinated, or centralized multidistrict litigation matters existed. See http://www.jpml.uscourts.gov/Pending_MDLs/PendingMDL-May-05.pdf.
[14] Plaintiffs usually are the ones who oppose transfer, but occasionally ones with weak claims ask for transfer in hopes of finding an indulgent judge. See In re Not-for-Profit Hospitals/Uninsured Patients Litig., 341 F. Supp. 2d 1354 (J.P.M.L. 2004) (denying plaintiffs’ motion for order centralizing litigation in single district).
[15] For discussion of offensive use of collateral estoppel, see Parklane Hosiery Co. v. Shore, 439 U.S. 322, 329 (1979); Bear, Stearns & Co., Inc. v. 1109580 Ontario Corp., 2005 WL 1231616, at *3-*4 (2d Cir. May 25, 2005) (discussing Parklane Hosiery).
[16] A section 1407 transfer requires the transferee court to apply the transferor court’s understanding of state law. E.g., In re Gen. Am. Life Ins. Co. Sales Practices Litig., 391 F.3d 907, 911 (8th Cir. 2004) (“When considering issues of state law,…the transferee court must apply the state law that would have applied had the cases not been transferred for consolidation.”). As to federal law issues, including questions of procedure, the transferee court applies the law of its own circuit. E.g., id. (“When a transferee court receives a case from the MDL Panel, the transferee court applies the law of the circuit in which it is located to issues of federal law.”); see In re Cardizem CD Antitrust Litig., 332 F.3d 896, 911 n.17 (6th Cir. 2003) (noting that transferee court may not have to apply “precedent ‘unique’ to a particular circuit and arguably divergent from the predominant interpretation of a federal law”)
[17] By filing their own counter-motion, plaintiffs concede the need for transfer but highlight their preference among potential transferee courts.
[18] Public Law 109-2, which bears the title “Class Action
Fairness Act of 2005,” also attempts to make class actions harder to maintain
and less profitable for lawyers to win.
See Chapter 15 “Class Actions”.
[19] Manual for Complex Litigation,
Fourth § 20.3.
[20] See, e.g., Newby v. Enron Corp., 338 F.3d 467 (5th
Cir. 2003) (affirming district court’s stay of discovery and injunction against
efforts to freeze assets in parallel state litigation).