Under the Class Action Fairness Act of 2005, 28 U.S.C. § 1715, federal court litigants are generally required to send notice of a proposed class action settlement to the "appropriate state official" of every state whose citizens would be affected by the settlement. That person is either the designated regulator of the affected company or, in all other cases, the state's attorney general.  The purpose of this requirement is to allow the state official to file a timely objection to any settlement.  Under the statute, if notice is timely provided, and no objections are made, the class member may not rely on this provision to avoid being bound by the settlement.  But what about the state AG?  The statute is silent on this topic.

In a case with potential repercussions for future settling nationwide class actions, U.S. District Judge Virginia Covington of Tampa, Florida, ruled that Capital One's $250 million nationwide class action settlement does not bar subsequent suits by state Attorneys General against the credit card company—even though the settlement agreement approved by the same judge bars such suits.   

Capital One sought  an injunction to stop two state court actions filed by the Attorneys General of Hawaii and Mississippi. Both suits attack the same payment protection fees at issue in the class action; each seeks damages through or on behalf of class members who already settled and released their claims. Capital One argued that the Court was authorized to issue an injunction “under the All Writs and Anti-Injunction Acts, 28 U.S.C. §§ 1651, 2283, because an  injunction will protect and effectuate the Court’s orders by preventing relitigation of claims that have already been settled and released.”  The Court rejected that argument explaining that, since neither state was defined as a class member to the settlement agreement, an injunction would violate their due process rights because they “did not have an opportunity to participate in the litigation or opt out of the class.”

This part of the Court’s ruling, however, is in direct contradiction to the settlement terms it previously approved that specifically identified the “the government in its capacity in parens patriae,” as a one of the many parties “deemed to have completely released and forever discharged” claims against Capital One. The ruling is also contrary to established law that precludes Attorneys General from asserting claims in a representative capacity on behalf of citizens who settled and released their claims. In re Baldwin-United Corp., 770 F.2d 328, 333-41 (2d Cir. 1985) (enjoining Attorneys General and “all other persons having actual knowledge of th[e] Order”).

The Court also stated that an injunction was not necessary “in the aid of its jurisdiction” over the settlement agreement because the “matter has been closed for over a year, and the Court declined to retain jurisdiction after disposing of the claims.” The Court further explained that if it were to grant an injunction, “it would not be enforcing any existing court order that it has entered, rather it would be crafting an entirely new injunction that would usurp the claims of two sovereign states in violation of the Eleventh Amendment and other laws.”  The Court added that it is the province of the state courts to determine whether the settlement agreement should bar the state actions from going forward.

The Court’s ruling could have a tremendous impact on the disposition of nationwide class actions. Defendants will be less likely to agree to a settlement, if there is a chance, as in this instance, that a Court will refuse to enforce the terms of the settlement, and the defendants may face subsequent claims by state Attorneys General. Capital One has not indicated whether it will appeal the ruling. The CFS-Lawblog will be closely following any developments in this case, so check back with us regularly for updates on this developing story.