AU Optronics Corp. v. South Carolina, No. 11-254, and LG Display Co., Ltd. v. South Carolina, No. 11-255
Decided: October 25, 2012
In addressing AU Optronics and LG Display’s (together “Defendants”) separate appeals of the District Court of South Carolina’s decisions to remand their cases to South Carolina state court, the Fourth Circuit adopted the “whole-case approach” to resolve the jurisdictional question at issue in the case. Applying this approach to determine whether federal jurisdiction existed in each case, the Court found that “the nature and effect” of both actions “demonstrate[d] that South Carolina is a real party in interest,” and that the State’s claims of restitution did not alter the State’s status as a real party to the action. Thus, because the Court determined that individual South Carolina citizens who would benefit from any restitution award did “not need to be considered in the diversity analysis of the State’s claims,” it held that minimal diversity was not established for the Class Action Fairness Act of 2005 (“CAFA”) purposes and affirmed the District Court’s decision to remand both cases to state court.
This case originated when South Carolina brought “nearly identical lawsuits” in state court alleging that the Defendants, both manufacturers of LCD panels, had engaged in a price-fixing conspiracy. The State sought relief provided under several state statutes, as well as restitution on behalf of South Carolina citizens, as provided in the South Carolina Unfair Trade Practices Act (“SCUTPA”). After the Defendants removed their individual cases to the District Court of South Carolina, the State moved to remand the cases to state court. The District Court determined “that South Carolina was properly pursuing these parens patriae lawsuits under its own antitrust and unfair trade practices laws” and remanded both cases to state court. The Defendants then individually petitioned the Fourth Circuit for permission to pursue appeals under CAFA. The Defendants each argued that federal jurisdiction existed because their cases qualified as mass actions under CAFA.
On appeal, the Fourth Circuit focused on the minimal diversity requirement needed to establish a mass action under CAFA. (The Court did not address CAFA’s numerosity or amount-in-controversy requirements). Ultimately, the Court focused on determining whether South Carolina was a real or nominal party. The Defendants argued that South Carolina was merely a nominal party and that, because the real parties in interest were the citizens of South Carolina, diversity was established. The Defendants argued that the Court should apply the “claim-by-claim” approach under which individual South Carolina citizens would qualify as real parties in interest to the restitution claim, thus establishing diversity of citizenship for the entire case.
The Court expressly rejected the “claim-by-claim” approach and adopted the “whole-case approach” recently adopted by the Fifth and Ninth Circuits. Accordingly, the court refused to “dissect the complaint and decide whether the state is the beneficiary of each basis for relief.” Instead, the Court “consider[ed] the complaint in its entirety and decide[d] from the nature and substance of its allegations what interest the state possesses in the lawsuit as a whole.” While acknowledging that individual South Carolina citizens stood to benefit from an award of restitution, the Court found that any restitution award was incidental to the State’s overriding interests and to the substance of the proceedings.” Thus, the Court concluded that the State could properly pursue its actions as parens patriae actions in state court.