Fourth Circuit Rejects Removal of "Disguised Class Action"
When is a state’s parens patriae action really a class action in disguise, and therefore removable under CAFA? Almost never, according to a recent opinion by a divided Fourth Circuit panel.
In State of West Virginia v. CVS Pharmacy, the West Virginia attorney general sued six pharmacies in West Virginia state court, alleging that the pharmacies violated West Virginia law by selling generic drugs to West Virginia consumers without passing along to the consumers the cost savings of generic drugs over brand name equivalents. The attorney general alleged that the pharmacies’ practices violated two state statutes, one regulating the practice of pharmacy and the other prohibiting unfair or deceptive trade practices.
The pharmacies removed the action to federal court under CAFA, arguing that the lawsuit was a “disguised class action.” The pharmacies contended that the action met the Rule 23 and CAFA requirements for a removable class action: i.e., that the number of West Virginia consumers and prescriptions filled for them met CAFA’s numerosity and amount-in-controversy requirements; that minimal diversity was satisfied because the pharmacies are not West Virginia citizens; and that the action was a representational proceeding because the attorney general sought refunds on behalf of affected West Virginia purchasers of generic drugs. The attorney general moved to remand, and the federal district court granted the motion.
On appeal, the Fourth Circuit panel affirmed the remand order, concluding that the suit is not a “class action” as defined by CAFA. CAFA authorizes removal of actions that are brought under Rule 23 or a “similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action.” The court observed that the lawsuit had been brought under neither Rule 23 nor West Virginia’s corresponding state court rule, but under substantive statutes that include no provisions for a “typical class action.” While the pharmacies claimed that the state statutes are nonetheless “similar” to Rule 23, because they allow the attorney general to bring a single action representing multiple consumers who all suffer a similar injury, the court disagreed, noting that the state statutes lack the Rule 23 requirements of numerosity, commonality, typicality, and adequacy of representation. Moreover, the court held, the representational action permitted under the state statutes is also different from a class action in that the attorney general is not a member of the “class,” as would be required under Rule 23.
Finally, the court held that permitting the pharmacies to remove the action to federal court would violated “deeply-rooted principles of federalism,” to which CAFA “is also sensitive.” Noting that the case was brought by the state of West Virginia to enforce West Virginia laws on behalf of West Virginia citizens, the court was unwilling “to mandate that the State was not entitled to pursue its action in its own courts . . . and inappropriately transform[] what is essentially a West Virginia matter into a federal case.”
The dissenting opinion noted that “some of the same private attorneys representing the Attorney General here are simultaneously representing individuals who have filed essentially identical claims against the same defendants in Michigan and Minnesota.” The dissent noted that those claims were filed as class actions, and “[i]f one were to close one’s eyes as to who the named plaintiff is in the three lawsuits, there is no way to detect a material difference” between the two class actions and the West Virginia suit.
Nevertheless, at least in the Fourth Circuit, defendants seeking to remove a parens patriae action will not be permitted to rely on the action’s resemblance to a class action. Unless the action is brought pursuant to the state’s equivalent of Rule 23, it will not be removable under CAFA.
