Trends in Class Action Litigation

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Winston & Strawn
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©2009
CHARLOTTE CHICAGO GENEVA HONG KONG LONDON LOS ANGELES MOSCOW
NEW YORK NEWARK PARIS SAN FRANCISCO WASHINGTON,D.C.
Trends in Class Action Litigation
Presented by: Neal R. Marder and Stephen R. Smerek
ACCA–SoCal DoubleHeader®:
Preparing For The Rebound
November 17, 2009
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©2009
2
Trends in Class Litigation
• Recent Trends in Pleading
Standards
• No-injury Product Liability Class
Actions
• "Greenwashing" Consumer Class
Actions
• Securities Class Actions
• Settlement Scrutiny Post-CAFA
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©2009
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The views expressed by the persons in this session are
those of the independent individual person only and do
not necessarily represent the views of any organization,
company, corporation, business, firm or entity.
Winston & Strawn
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©2009
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Recent Trends in Pleading Standards &
Class Actions
• Federal Court Pleading Standard
• Rule 8(a)(2) of the Federal Rules of Civil Procedure
requires a complaint to contain a "short and plain
statement of the claim showing that the pleader is
entitled to relief."
• Historically, the plaintiff merely had to allege that any
possible set of facts supported a claim which would
entitle him to relief. Conley v. Gibson
, 355 U.S. 41
(1957).
• U.S. Supreme Court decisions in Twombly
and Iqbal
Alter the Pleading Landscape
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Recent Trends in Pleading Standards &
Class Actions (cont'd)
• Bell Atlantic Corp. v. Twombly
, 550 U.S. 544 (2007)
• Class action brought by subscribers of telephone and
Internet services alleging that local internet and telephone
carriers entered into antitrust conspiracy designed to
discourage new competitors from entering their markets.
• The Supreme Court held:
• Complaint cannot simply contain conclusory statements, but must
contain specific facts that would entitle the plaintiff to relief.
• The complaint must allege more than mere conclusions or a
recitation of the elements of the claim. The complaint must be
plausible on its face.
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Recent Trends in Pleading Standards &
Class Actions (cont'd)
• Ashcroft v. Iqbal
, 129 S.Ct. 1937 (2009)
• Javid Iqbal, a Muslim originally from Pakistan, was arrested
after the 9/11 attacks. Iqbal was designated as a “high
interest” detainee, separated from the general prison
population, and assigned to a special section of the prison.
Iqbal filed suit, alleging he suffered numerous forms of
abuse while in prison, and asserting discrimination and other
Eighth Amendment claims against Attorney General Ashcroft
and FBI Director Mueller.
• The Supreme Court held:
• Heightened pleading standard in Twombly
applied to all civil claims.
• Task of determining whether a complaint included a plausible claim for
relief was context-dependant requiring individual courts to use their
own judgment.
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Recent Trends in Pleading Standards &
Class Actions (cont'd)
• The “Plausibility” Pleading Standard
• Together, the Twombly
and Iqbal
decisions establish a
pleading standard that requires sufficient facts to plausibly
support the claim.
• To state a claim, a plaintiff must plead sufficient factual
matter to show that the defendant is culpable for the
unlawful conduct.
• Mere recitals of the elements of a cause of action,
supported by conclusory statements, are not sufficient.
• A complaint must contain sufficient factual matter, accepted
as true, to state a claim for relief that is plausible on its face.
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Recent Trends in Pleading Standards &
Class Actions (cont'd)
• Application of the “Plausibility” Pleading
Standard
• What factual allegations make pleading plausible on its face?
• Determining whether a complaint states a plausible claim is a
context-specific task that requires the court to draw on its
judicial experience and common sense.
• Where a complaint pleads facts that are merely consistent
with a defendant’s liability, it stops short of the line between
possibility and plausibility of entitlement to relief.
• This pleading standard is not akin to a probability
requirement, but asks for more than mere possibility that a
defendant acted unlawfully.
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Recent Trends in Pleading Standards &
Class Actions (cont'd)
• Complex v. Simple Cases Under the
“Plausibility” Pleading Standard
• The factual detail necessary to meet the standard under Twombly
and Iqbal
varies depending on the legal and factual context. Claims
based on scenarios that do not suggest wrongdoing will require
greater factual substantiation to pass the plausibility threshold.
Benjamin Spector, Understanding Pleading Doctrine, 108 Mich. L.
Rev. 1, 20-26 (2009).
• “How many facts are enough will depend on the type of case. In a
complex antitrust or RICO case a fuller set of factual allegations than
found in the sample complaints in the civil rules’ Appendix of Forms
may be necessary to show that the plaintiff’s claim is not largely
groundless.” Id
. (citing Limestone Dev. Corp. v. Village of Lemont
,
520 F.3d 797, 803 (7th Cir. 2008)).
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Recent Trends in Pleading Standards &
Class Actions (cont'd)
• Impact of the "Plausibility" Pleading Standard
• Conclusory complaints lacking specific factual
allegations to support each of the elements of each claim
will likely be dismissed.
• In the months since Iqbal
, federal judges have cited to Iqbal
over
500 times. In many of these cases, the district courts have
afforded plaintiffs the opportunity to file an amended complaint to
cure the deficiencies in the complaint under Twombly
and Iqbal
.
• Balancing of Interest – Twombly
and Iqbal
indicate that courts
now play the role of gatekeepers for the purpose of protecting
defendants from frivolous actions. Companies now have a
greater ability to strike down meritless claims at the pleading
stage by filing a motion for dismissal.
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©2009
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Recent Trends in Pleading Standards &
Class Actions (cont'd)
• Impact of the "Plausibility" Pleading Standard
• Will the plausibility pleading standard be rolled back?
• In July, 2009, Senator Arlen Specter (D-Pa.) introduced
legislation designed to return the civil pleading standard to its
pre-Twombly
state. In support of his legislation, Senator Specter
stated that, “the effect of the Supreme Court’s actions will no
doubt be to deny many plaintiffs with meritorious claims access
to the federal court and, with it, any legal redress for their
injuries.”
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Recent Trends in Pleading Standards &
Class Actions (cont'd)
• In re Tobacco II
, 46 Cal. 4th
298 (2009)
• Plaintiffs brought a statewide class action lawsuit against a
number of tobacco industry defendants alleging that the
defendants had engaged in a decades-long public
disinformation strategy concerning the health effects of
cigarette smoking.
• Prior to the passage of Proposition 64, the trial court certified a
class defined as “All people who at the time they were residents
of California, smoked in California one or more cigarettes
between June 10, 1993 and April 23, 2001, and who were
exposed to Defendants’ marketing and advertising activities in
California.”
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Recent Trends in Pleading Standards &
Class Actions (cont'd)
• In re Tobacco II
, 46 Cal. 4th
298 (2009)
• Following the passage of Proposition 64, the defendants moved
to decertify the class, arguing that each class member was now
required to show an injury in fact, consisting of lost money or
property, as a result of the alleged unfair competition.
• The trial court granted Defendants’ decertification motion,
finding that individual issues would predominate because the
language of Proposition 64 required, for standing purposes, a
showing of causation as to each class member’s injury in fact.
The California Court of Appeal affirmed.
• On review, the California Supreme Court reversed the trial
court’s order decertifying the class.
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Recent Trends in Pleading Standards &
Class Actions (cont'd)
• In re Tobacco II
Decision
• Holding 1
– While carefully limiting its discussion to
UCL actions based on a fraud theory involving false
advertising and misrepresentations to consumers,
the court concluded that Prop 64 imposes an
actual reliance requirement.
• Holding 2
– Only the class representatives in a
private enforcement action under the UCL need to
plead and prove that they suffered injury in fact and
lost money or property "as a result of" the alleged
wrongdoing.
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Recent Trends in Pleading Standards &
Class Actions (cont'd)
• In re Tobacco II
– Injury in Fact
• A sufficient showing is made if the false advertising
or misrepresentation has played a substantial part,
and so has been a substantial factor, in influencing
the plaintiff's decision.
• Where plaintiff has alleged exposure to a long-term,
extensive advertising campaign, the plaintiff is not
required to plead and prove individualized reliance
on specific misrepresentations or false statements
1
5
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Recent Trends in Pleading Standards &
Class Actions (cont'd)
• In re Tobacco II
– Further Issues
• What amount of advertising constitutes an "extensive and long-term
advertising campaign" sufficient to relieve plaintiff from burden to plead and
prove individualized reliance? Morgan v. AT&T Wireless Services, Inc.
• Trial court certified a class of consumers who were exposed to defendant's
marketing and advertising activities. What constitutes "exposure" to
marketing and advertising activities?
• Does the In re Tobacco II
decision which addressed an allegedly fraudulent
misrepresentation also apply to fraud-based UCL claims premised on
alleged omissions? Plascencia v. 1st Mortgage
• In re Tobacco II
addressed the "fraud" prong, will the decision also be
applied to UCL's "unlawful" and "unfair" prongs?
• How will the federal court's address this issue given the Article III standing
requirement and Rule 23 of the Federal Rules of Civil Procedure
1
6
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No-Injury Product Liability Class Actions
• What is a “No-Injury Product Liability”
class action?
• Class action lawsuit commenced by purchasers
of a product who have not suffered personal
injury or damage to property from use of the
product, yet contend that they have been harmed
because the product allegedly contains an
unmanifested safety defect
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No-Injury Product Liability Class Actions
(cont'd)
• Typical Contentions in No-Injury Class
Actions
• Plaintiffs generally seek recovery of economic
damages only. Plaintiffs contend that they, and a
class of similarly situated consumers, have been
deceived into paying more for the product than they
otherwise would have paid had they known the truth
about the product in question (i.e., had they known
about the potential dangers of using the product).
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No-Injury Product Liability Class Actions
(cont'd)
• No-Injury Cases & Standing Issues
• Most federal and state courts that have considered
no-injury product liability cases have found that
allegations of economic injury alone, in the
absence of physical injury or property damage, are
not sufficient to establish a legally cognizable injury
or standing to sue.
• O’Neil v. Simplicity, Inc.
, 574 F.3d 501 (8th Cir. 2009)
• Rivera v. Wyeth-Ayerst Labs.
, 283 F.3d 315 (5th Cir. 2002)
• Ziegelmann v. Daimler Chrysler Corp.
, 649 N.W.2d 556 (N.D.
2002)
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No-Injury Product Liability Class Actions
(cont'd)
• Standing – The Other Side
• A handful of courts, however, have reached a
different conclusion, holding that allegations of
economic harm alone are sufficient to give plaintiff
class standing to sue.
• Cole v. General Motors Corp.
, 484 F.3d 717 (5th Cir. 2007)
• Gonzalez v. Pepsico, Inc.
, 489 F. Supp. 2d 1233 (D. Kan.
2007)
• Sanchez v. Wal-Mart Stores
, No. 2:06-CV-2573, 2008 U.S.
Dist. LEXIS 70468 (E.D. Cal. Aug. 6, 2008)
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No-Injury Product Liability Class Actions
(cont'd)
• In re Bisphenol-A (BPA) Polycarbonate Plastic Bottle
Liability Litig.
, MDL No. 1967, W.D. Mo. Master Case
No. 08-01967-MD-W-ODS.
• Coordination for pre-trial proceedings of several class action lawsuits filed
in a number of jurisdictions against various defendants.
• Plaintiffs allege that they purchased defendants’ baby bottles and other
products. Plaintiffs contend that because defendants’ products allegedly
contain trace amounts of BPA, the products are potentially unsafe.
• Plaintiffs do not allege that they or their children suffered any physical
harm or property loss from their use of defendants’ products.
Nonetheless, plaintiffs seek to recover the full amount of the price they
paid for such products, contending that they would not have purchased
the products had they been aware of the alleged existence of trace
amounts of BPA in the products.
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No-Injury Product Liability Class Actions
(cont'd)
• Summary
• While the bulk of authorities hold that no-injury product
liability claims do not allege a cognizable injury
sufficient to confer standing to sue, plaintiffs’ lawyers
continue to bring consumer class action lawsuits
premised on potentially harmful products that have not
caused physical harm or property damage to plaintiffs
or the putative class.
• To distinguish their case, plaintiffs likely will argue the
defect in the product existed at the time of purchase
and, as a result, plaintiffs suffered economic harm at
the moment they purchased the product.
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"Greenwashing" Consumer Class Actions
• What is a "Greenwashing" consumer class
action?
• Making a false or unverifiable claim that your product
or service is environmentally friendly in an effort to
foster a pro-environmental image and increase sales.
• Examples of common words that could result in a claim
of Greenwashing include, among others:
“environmentally friendly,” “sustainable,” “gone green,”
“recyclable content”.
• Symbols are also used to convey that a product is
environmentally friendly or green.
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"Greenwashing" Consumer Class Actions
(cont'd)
• Seven Sins of Greenwashing*
• Sin of the Hidden Trade-off
• Sin of No Proof
• Sin of Vagueness
• Sin of Irrelevance
• Sin of Lesser of Two Evils
• Sin of Fibbing
• Sin of Worshiping False Labels
* Identified by TerraChoice Environmental Marketing Inc.; reports and
resources available at http://sinsofgreenwashing.org
.
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©2009
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"Greenwashing" Consumer Class Actions
(cont'd)
• Federal Trade Commission ("FTC")
• The FTC has the power to bring law enforcement actions
against false or misleading marketing claims, including
environmental or “green” marketing claims.
• In order to protect consumers from unfair or deceptive
practices, the FTC explained its multi-tiered approach of (1)
issuing rules and guides for businesses, (2) challenging
fraudulent and deceptive ads through enforcement actions,
and (3) publishing materials to help consumers make
informed purchasing decisions.
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"Greenwashing" Consumer Class Actions
(cont'd)
• FTC "Green Guides"
• FTC's Environmental Guides, often referred to as the
"Green Guides," outline general principles that apply to all
environmental marketing claims and provide guidance on
specific green claims, such as biodegradable, compostable,
recyclable, recycled content, and ozone safe. See
16
C.F.R. Part 260.
• The FTC issued the Green Guides in 1992, and updated
them in 1996 and 1998. The FTC is currently reviewing the
Green Guides to ensure that they are appropriately
responsive to changes in the marketplace and in consumer
perception of environmental claims.
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"Greenwashing" Consumer Class Actions
(cont'd)
• "Green" Class Actions
• As recognized by the FTC, there has been a proliferation
of green claims in the marketplace. Such claims may
give rise to consumer class action lawsuits alleging that
consumers were misled by false or deceptive claims
about the "green" attributes of a product or service
• Petlack v. SC Johnson & Son, Inc.
, W.D. Wisc. Case No.
08-cv-00820 (filed September 29, 2008)
• Koh v. SC Johnson & Son, Inc.
, N.D. Cal. Case No. 09-cv-00927
(filed March 2, 2009)
• Hill v. Roll International Corp, et al.
, San Francisco Superior
Court Case No. 09-cv-487547 (filed April 20, 2009)
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"Greenwashing" Consumer Class Actions
(cont'd)
• Greenwashing & Section 17200
• Trends to Watch – Potential that increased
governmental regulation to prevent "greenwashing"
will give rise to Section 17200 claims based on
allegedly "unlawful" business practices
• Battleground – Litigation over standing
requirements, injury in fact, and "long-term,
extensive advertising" in light of In re Tobacco II
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"Greenwashing" Consumer Class Actions
(cont'd)
• Summary
• Because consumers are growing increasingly concerned
about the impact of their purchases on the environment,
companies are likely to try to gain competitive advantage by
marketing their products and services as environmentally
friendly or “green”.
• However, these types of claims, and other claims regarding
corporate responsibility, run the risk of sparking consumer
class action lawsuits alleging that the claims are deceptive or
misleading.
• Policies and procedures should be put in place to minimize
potential exposure from these types of claims.
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Securities Class Actions Trending Downward
• 2009 Securities Class Actions Filings
• Filings in the first half of 2009 were down nearly 25%
from the first half of 2008
• Majority of actions filed against financial companies,
who were defendants in two-thirds of the filings in the
first half of 2009 (up from 50% in 2008)
• Emerging global market trend – the number of foreign
companies targeted continues to rise with 1 in 5
actions so far this year naming a foreign entity.
• Decline in filings is being attributed to ongoing cases
filed in 2007 and 2008 and cyclical nature of the stock
market
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Settlement Scrutiny Post-CAFA
• Approval of Federal Class Action Settlements
• Rule 23(e) requires a court approving a settlement agreement to
find that it is “fair, reasonable, and adequate.” The factors that go
into making such a determination are not delineated in the statute.
• While the number and wording of factors vary across circuits,
each circuit’s factors generally comprise four primary concerns.
• The strength of the plaintiff’s case on the merits balanced against the
amount offered in settlement
• The presence of collusion in reaching a settlement
• The reaction of members of the class to the settlement
• The stage of the proceedings and the amount of discovery completed
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Settlement Scrutiny Post-CAFA (cont'd)
• CAFA Heightens Judicial Scrutiny of Federal Class
Action Settlements
• The perceived abuses of class action filings by parties and their attorneys
led to the Class Action Fairness Action of 2005 (CAFA) where Congress
shifted many class actions to federal court and assigned new
responsibilities to federal judges.
• Judges See Themselves as Class Fiduciary
• “District judges must therefore exercise the highest degree of vigilance in
scrutinizing proposed settlements of class actions to consider whether the
settlement is fair, adequate, and reasonable, and not a product of collusion.
Indeed, the district court judge functions as a fiduciary of the class, who is
subject therefore to the high duty of care that the law requires of fiduciaries.”
Mirfasihi v. Fleet Mortgage Corp.
, 450 F.3d 745, 748 (7th Cir. 2006).
• “The judge who presides over the class action and must approve any
settlement is charged with responsibility for preventing the class lawyers
from selling out the class.” Thorogood v. Sears, Roebuck & Co.
, 547 F.3d
742, 745 (7th Cir. 2008).
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Settlement Scrutiny Post-CAFA (cont'd)
• CAFA’s Impact on Coupon Settlements
• CAFA includes several new requirements specifically addressing class
action settlements providing for recovery of "coupons" to class members.
28 U.S.C. § 1712.
• The new provisions governing coupon settlements provide that “the court
may approve the proposed settlement only after a hearing to determine
whether, and making a written finding that, the settlement is fair,
reasonable and adequate for class members.” 28 U.S.C. § 1712(e).
• While the “fair, reasonable and adequate” language under CAFA is identical to
that in place under Rule 23(e), CAFA has been construed to require “the
application of a greater level of scrutiny to the existing criteria than existed pre-
CAFA.” Figueroa v. Sharper Image Corp.
, 517 F. Supp. 2d 1292, 1321 (S.D.
Fla. 2007).
• The new provisions also place restrictions on attorney's fee awards to
class counsel. 28 U.S.C. § 1712(a),(b)
• Heightened judicial scrutiny and restrictions on fee awards under CAFA
make coupon settlements a less attractive alternative to resolve weak
cases.
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Settlement Scrutiny Post-CAFA (cont'd)
• CAFA Notice Requirements – Noticing the
Appropriate Federal and State Officials
• Defendant must serve notice of proposed settlement on appropriate
federal official and appropriate state official for each state in which a class
member resides. se counsel is responsible for providing the requisite
notice. 28 U.S.C. § 1715(b).
• Notice must be served “[n]ot later than 10 days after a proposed
settlement of a class action is filed in court. …” 28 U.S.C. § 1715(b).
• Notice must consist of the complaint; notice of any court hearing;
notification to class members; if feasible, the names of class members
who reside in each state, or a reasonable estimate of the number of
class members residing in each State; information regarding the
proportionate share of claims attributable to class members from each
state; and any written judicial opinion relating to the settlement. 28
U.S.C. § 1715(b).
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Settlement Scrutiny Post-CAFA (cont'd)
• CAFA Notice Requirements – Consequences of New
Notice Requirements
• If defendant fails to give notice to appropriate federal and state officials,
class members can choose not to be bound by the settlement. 28 U.S.C. §
1715(e)(1).
• Federal and state officials may chose to object or intervene in action.
• CAFA does not specify any rights that state officials and attorney generals might have to
appear or object to a proposed settlement or to otherwise participate in the action. But under
existing procedures, such officials can either object as an interested party or intervene.
• Federal and state officials have time to comment and object to proposed settlements because
a judge’s order giving final approval may not be issued until ninety days after appropriate
notification is given. 28 U.S.C. § 1715(d).
• Federal and state officials may act to upset settlement. Figueroa v. Sharper Image Corp.
,
517 F.Supp.2d 1292 (S.D. Fla. 2007) (In denying final approval to coupon settlement, the
Court distinguished settlement based on vigorous objections from attorneys general of 35
dates and the District of Columbia).
• The National Association of Attorneys General now posts summaries of all class-action
notices on an internal Website, enabling various state attorneys general’s offices to keep
abreast of recent filings and to enable coordinated efforts where there is sufficient interest.
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Settlement Scrutiny Post-CAFA (cont'd)
• Summary
• CAFA provides greater access for defendants to remove class
actions to the to federal courts
• But, the additional scrutiny governing coupon settlements and
additional notice requirements can make settlement more
challenging
• As a result, the decision to remove class actions to federal
court needs to be carefully considered in every case, taking
into consideration all relevant circumstances, including: the
alternate state court forum and experience with similar cases
in that forum, the likely defenses to class certification, the
strength of the case and the relevant legal and factual issues,
and the overall strategy for resolution.