The Shady Grove chickens come home to roost …

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Aug 19, 2015

The class action bar knew it was just a matter of time before the Supreme Court’s decision in Shady Grove Orthopedic Associates, P.A. v. Allstate Ins. Co., 559 U.S.393 (2010) began having an impact on cases brought under the various state unfair and deceptive trade practices acts. Well, that time has come in the 11th Circuit.

In Lisk v. Lumber One Wood Preserving, LLC, the plaintiff was a homeowner who constructed a fence made of treated wood that was supposed to resist rot, decay and insect damage for 15 years. After 3 years, the fence had allegedly rotted. The plaintiff filed a class action lawsuit in federal court in Alabama asserting claims under the Alabama Deceptive Trade Practices Act (the “ADTPA”).

The defendant immediately moved to dismiss the case, arguing that the ADTPA expressly prohibits class actions and that plaintiff’s individual claims did not meet the amount in controversy requirement for diversity jurisdiction. The district court agreed and dismissed the case.

On appeal, the 11th Circuit reversed. Relying on Shady Grove, the 11th Circuit held that Federal Rule of Civil Procedure 23 preempted the conflicting Alabama law and allowed the assertion of ADTPA claims on a class action basis.

Why is this important? The simple answer is that it significantly increases the exposure of corporate defendants. Many states have statutes similar to the ADTPA that protect consumers from unscrupulous merchants, but also expressly forbid the assertion of such claims on a class basis. Under Shady Grove and nowLisk, those claims can be asserted on a class basis, IF they are filed in federal court.

As a corporate defendant, which case had you rather litigate? A single plaintiff case, like Mr. Lisk’s, where the damages are cost of replacing some rotted wood, a penalty and attorneys fees. Or, a class action consisting of thousands or perhaps tens of thousands of plaintiffs having the same claims as Mr. Lisk? The answer is obvious.

It will be an odd sight indeed to see corporate defendants routinely advocating for state court forums.

Craig E. Bertschi, Partner — McRae Bertschi LLC