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CAFA Jurisdiction Ruling Shakes Class Action Bar

Practitioners on both the defense and plaintiff sides were left scratching their heads when an 11th Circuit panel handed down its opinion in Cappuccitti v. DirecTV, Inc. on July 19. The case involved a class action lawsuit that consumers brought in Georgia federal court to challenge the early-cancellation fees that DirecTV imposed against its cable television subscribers. The issue before the 11th Circuit was DirecTV's motion to compel arbitration in the case, which the U.S. District Court for the Northern District of Georgia denied.

Instead of addressing the arbitration issue, however, the 11th Circuit ruled sua sponte that it lacked jurisdiction to hear the case, which it then remanded to the district court for dismissal. The way the court reached its conclusion has raised eyebrows: For the case to belong in federal court, it said, at least one of the class members' individual claims had to exceed $75,000. It cited Section 1332(a) of the U.S. Code (Section 1332 governs diversity jurisdiction).

However, observers point out that the Class Action Fairness Act of 2005 (CAFA)--which Congress enacted to curb abuses in the class action system--created Section 1332(d), which is used to determine diversity jurisdiction in class actions specifically. Section 1332(d) gives federal district courts original jurisdiction over class actions in which more than $5 million is at stake and directs that determination to be made based on the aggregate claims of the individual class members. In prior 11th Circuit precedent, the appeals court has agreed with that requirement.

"CAFA said if the aggregate amount in controversy is more than $5 million, it doesn't matter if each individual plaintiff's claim is quite small--it was a change from the pre-CAFA jurisdictional framework where courts had interpreted the requirements as saying at least one class plaintiff had to have a claim of at least $75,000," says Adam Steinman, a professor at Seton Hall University School of Law. "Cappuccitti was certainly a surprising ruling because essentially the 11th Circuit ended up imposing requirements for CAFA jurisdiction that had been explicitly and quite consciously eliminated by Congress."

Overlooked Intentions

The appeals court found that Congress could not have meant CAFA to obviate Section 1332(a)--the $75,000 individual claim rule--when CAFA created Section 1332(d).

If the court found otherwise, Judge Gerald Bard Tjoflat wrote for the 11th Circuit panel, "We would essentially transform federal courts hearing originally-filed CAFA cases into small claims courts, where plaintiffs could bring five-dollar claims by alleging gargantuan class sizes to meet the [$5 million] aggregate amount requirement. While Congress intended to expand federal jurisdiction over class actions when it enacted CAFA, surely this could not have been the result it intended."

That statement generated the loudest objection to the decision.

"The surprise that this created in the class action bar, both the defense and plaintiffs' sides, was immense because everybody understood that Congress was actually doing exactly that," says Archis Parasharami, a partner at Mayer Brown. "Cases involving small claims aggregated into massive cases were exactly the type of potentially abusive claims Congress wanted removed to federal courts, on the theory they would give the defense a fairer shake."

If the ruling stands, it could have a massive impact on class actions in the 11th Circuit.

"If the decision is construed to also apply to cases removed from state court by a defendant, it would virtually eliminate all diversity class actions from 11th Circuit," says D. Matthew Allen, a shareholder at Carlton Fields. "That couldn't have been Congress' intent in seeking to open the doors of the federal courts to class action litigants."

Seed of Discontent

Many commentators believe the ruling was based on a misreading of Section 1332 of the U.S. Code, which governs diversity jurisdiction.

The court relied on Section 1332(a) to reach its determination, apparently importing the $75,000 individual requirement in that provision into Section 1332(d), which governs CAFA jurisdiction. To do this, it relied on the provisions of CAFA that govern mass actions--the only part of the legislation that mentions the $75,000 individual claim requirement. But mass actions, which involve the aggregation of many individual claims, are distinct from class actions, in which lead plaintiffs represent similarly situated class members. Thus, many say the court should never have applied the $75,000 requirement to Cappuccitti.

"To boil it down, I believe the error was a confusion of class actions and mass actions," Parasharami says.

Allen adds that the 11th Circuit even misconstrued the mass action provision of CAFA.

"The statute actually says that only cases included in a mass action where the individual amount in controversy exceeds $75,000 can stay in federal court," he says. "Yet the Cappuccitti court construed this provision to say that only one plaintiff must have damages that exceed $75,000 for the case to stay in federal court."

The 11th Circuit's ruling has the potential to significantly narrow the scope of federal jurisdiction under CAFA. The question is whether the ruling will stand, especially in light of the scrutiny it has received. Both parties have filed petitions for panel rehearing or en banc review of the 11th Circuit opinion (see "Rehearing Review").

"Hopefully, the full 11th Circuit will grant the petition and clean up the panel decision," Allen says. "Beyond that, defendants in class actions in federal court should litigate as they otherwise would."

Contributing Author

Melissa Maleske

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