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21 July 2010

Eleventh Circuit Decision Threatens To Eliminate Federal Jurisdiction Over Most Consumer Class Actions, Undermining The Goals Of The Class Action Fairness Act

The US Court of Appeals for the Eleventh Circuit has just issued a decision that, if it is allowed to stand, will preclude federal jurisdiction over virtually all class-action lawsuits filed in, or removed to, federal courts within that circuit. In Cappuccitti v. DirecTV, Inc., the Eleventh Circuit held sua sponte that the Class Action Fairness Act of 2005 (CAFA) does not allow for jurisdiction over class actions unless the amount in controversy for at least one plaintiff (or class member) exceeds $75,000. So long as Cappucitti remains in force, federal courts in the Eleventh Circuit will lack jurisdiction over virtually all consumer class actions and similar types of employment class actions under state law, as individual plaintiffs in those actions typically have modest claims. That result would undercut the core purpose of CAFA—to ensure a federal forum for significant class actions—and could transform state courts in the Eleventh Circuit into magnet jurisdictions for class actions that (under Cappuccitti) cannot be removed.

Background

In this action, two Georgia consumers sued DirecTV in federal court in Georgia, alleging that DirecTV violated Georgia law by charging early-termination fees to customers who cancel their service before their commitment term has expired. Although the named plaintiffs’ individual claims were relatively modest, the aggregate amount in controversy for the class as a whole exceeded $5 million, and at least one plaintiff was from a different state from DirecTV. The plaintiffs thus alleged in their lawsuit that federal jurisdiction existed under CAFA. DirecTV sought to compel arbitration of the plaintiffs’ claims in accordance with their service contracts. The district court denied the motion, and DirecTV filed an interlocutory appeal.

But the Eleventh Circuit declined to consider the merits of the appeal, instead concluding that the district court lacked subject matter jurisdiction, and thus was required to dismiss the case. The panel explained that (in its view) the case presented an open question: whether CAFA confers jurisdiction over a class action for which the aggregate amount in controversy exceeds $5 million as required by 28 U.S.C. § 1332(d)(6), but no individual plaintiff or class member also “meet[s] the § 1332(a) amount in controversy requirement”—i.e., by presenting a claim for more than $75,000.

The court held that, “in a CAFA action originally filed in federal court, at least one of the plaintiffs [in a class action] must allege an amount in controversy” of more than $75,000. The court based this conclusion on the belief that § 1332(d)(11)—which governs “mass actions”—“expressly appl[ied]” § 1332(a)’s $75,000 requirement to all “actions removed under CAFA,” and that the same rules governing jurisdiction over removed cases should apply to cases originally filed in federal court.

Analysis

Cappuccitti appears to rest on an inadvertent misreading of CAFA’s provisions. The panel began with the uncontroversial assumption that, under CAFA, the same requirements governing jurisdiction over removed actions apply to lawsuits originally filed in federal court. But the panel seemed to misunderstand § 1332(d)(11), which imposes special additional requirements on “mass actions” that do not apply to class actions. Although that subsection permits removal of “mass actions,” it specifies, among other things, that federal jurisdiction “exist[s] only over those plaintiffs whose claims in a mass action satisfy the jurisdictional amount requirements under [§ 1332(a)]”—i.e., that the plaintiff have an individual claim of more than $75,000.  But the panel appears to have overlooked that § 1332(d)(11) does not apply to class actions. Moreover, although the panel cited a Ninth Circuit decision—Abrego Abrego v. Dow Chemical Co., 443 F.3d 676 (9th Cir. 2006)—in support of its belief that § 1332(a) applies to all CAFA removals, that case involved the removal of a “mass action” rather than a class action.

If the panel’s decision stands unchanged, almost no consumer class actions or similar state-law employment class actions can be filed in, or removed to, federal courts within the Eleventh Circuit, because those cases rarely involve any plaintiffs whose individual claims exceed $75,000. That result would thwart CAFA’s goal of opening federal courts to hearing significant class actions. The panel worried that allowing a federal forum to any plaintiff with an individually small claim if he or she “alleg[es] [a] gargantuan class size[] to meet [CAFA’s] $5,000,000 aggregate amount requirement” would “essentially transform federal courts hearing originally-filed CAFA actions into small claims courts[.]” Yet, as CAFA itself explains, one of its key purposes was to “provid[e] for Federal court consideration of interstate cases of national importance under diversity jurisdiction.” 28 U.S.C. § 1711 note.

In view of the panel’s misreading of CAFA and the consequences for class-action litigation that would result if Cappuccitti remains in force, DirecTV is expected to petition for rehearing. The deadline for that petition is August 9, 2010; assuming that DirecTV files its petition on the due date, an amicus brief supporting rehearing would be due on August 19, 2010.

For more information about this issues raised in this Legal Update, please contact Donald M. Falk, Archis A. Parasharami or Kevin S. Ranlett.

Learn more about our Consumer Litigation & Class Actions and Supreme Court & Appellate practices.

The views expressed here are those of the authors and do not necessarily reflect the views of the firm or any of its clients.


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