U.S. Court of Appeals for the Eleventh Circuit Issues Decision Curtailing Federal Jurisdiction Over Class Actions

August 17, 2010

On July 19, 2010, the U.S. Court of Appeals for the Eleventh Circuit issued a decision that dramatically limits federal court jurisdiction over class actions initiated under the Class Action Fairness Act of 2005 (CAFA).  In Cappuccitti v. DirecTV, No. 09-14104, 2010 WL 2803093 (11th Cir. July 19, 2010), the court held that in a class action originally filed in federal court under CAFA, at least one individual plaintiff must allege a claim worth more than $75,000.  The immediate impact of this decision, if left intact, would be to deprive federal district courts in the Eleventh Circuit of subject matter jurisdiction over many class actions initiated in federal court. 

The primary purpose of CAFA was to channel state-law based class actions into federal court.  Tanoh v. Dow Chem. Co., 561 F.3d 945, 952 (9th Cir. 2009).  CAFA does this by conferring federal diversity jurisdiction over class actions in which the overall amount in controversy exceeds $5 million and the parties are minimally diverse (at least one plaintiff and one defendant from different states).  28 U.S.C. § 1332(d)(1)-(6).  CAFA thus imposes an amount-in-controversy requirement much greater than the $75,000 required to invoke traditional diversity jurisdiction under Section 1332(a), but in doing so the Act "abrogates the rule against aggregating claims" to reach that threshold.  Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 571 (2005); see also 14A Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 3704 (3d ed. 2010) ("[CAFA] . . . provides for aggregation even if no individual class member asserts a claim that exceeds $75,000."). 

The Eleventh Circuit’s recent decision breaks with this heretofore unchallenged interpretation of CAFA’s language and purpose.  In Cappuccitti, the plaintiff filed a putative class action in federal court under CAFA, seeking recovery of television subscriber fees that allegedly violated Georgia law.  The plaintiff alleged minimal diversity and class-wide damages exceeding $5 million.  Neither party disputed the court’s jurisdiction under CAFA.  But on review of the district court’s denial of the defendant’s motion to compel arbitration, the court of appeals raised sua sponte the issue of subject matter jurisdiction and concluded that "jurisdiction under CAFA was absent from the moment Cappuccitti brought this case."  Slip Op. at 4.  The jurisdictional defect was Cappuccitti’s failure to allege that any one plaintiff individually met the $75,000 amount in controversy set forth in Section 1332(a).  Id. at 9, 12.   

The Eleventh Circuit reached this novel conclusion by treating CAFA’s aggregate amount-in-controversy requirement (Section 1332(d)(2)) as a supplement to the traditional $75,000 requirement:  "CAFA did not alter the general diversity statute’s requirement that the district court have original jurisdiction ‘of all civil actions where the matter in controversy exceeds the value of $75,000’ and is between citizens of different States."  Id. at 9.  The court reasoned that although CAFA was intended to relax the requirement of complete diversity of citizenship, "there is no evidence of congressional intent in § 1332(d) to obviate § 1332(a)’s $75,000 requirement as to at least one plaintiff."  Id. at 10. 

The court evidently did not view Congress’s inclusion of a distinct amount-in-controversy requirement for CAFA class actions as evidence to the contrary.  Instead, the court looked to a CAFA provision governing the removability of "mass actions"—which, unlike class actions, are not a representative device but rather an aggregation of individual claims by multiple named plaintiffs.  Section 1332(d)(11)(B)(i) gives defendants the right to remove certain "mass actions" to federal court if they satisfy the requirements of Section 1332(d)(2)-(10) and "satisfy the jurisdictional amount requirements under [Section 1332(a)]."  The court also relied extensively on circuit precedent concerning removal of a mass action under CAFA.  Slip Op. at 5-8 (discussing Lowery v. Ala. Power Co., 483 F.3d 1184 (11 Cir. 2007)). 

*          *          *

On August 9, both parties in Cappuccitti filed petitions for rehearing en banc.  Each party contends that the panel misconstrued CAFA and confused the class action and mass action provisions of the Act.  Meanwhile, some district courts hearing class actions in the Eleventh Circuit have called for briefing on the implications of Cappuccitti.  Outside the circuit, however, it appears that no federal court has followed the decision, and at least one district court has noted and rejected its holding.  See Gutierrez v. Wells Fargo Bank, N.A., No. C 07-05923, 2010 WL 3155934, at *56 (N.D. Cal. July 19, 2010).

The Eleventh Circuit’s decision is built on flawed statutory construction.  CAFA creates an express and alternative basis for federal court jurisdiction over class actions.  The basis for jurisdiction is independent from the traditional diversity jurisdiction requirements under Section 1332(a).  Section 1332(d) imposes its own requirements for citizenship and amount in controversy, and no provision in CAFA warrants grafting Section 1332(a)’s requirements onto actions invoking jurisdiction under Section 1332(d).

If other circuits were to adopt the rule of Cappuccitti, it would close federal courts as forums for consumer class actions, in which any one plaintiff ordinarily does not have more than $75,000 in damages.  Such a result would defeat the basic goal of CAFA, which the Eleventh Circuit acknowledged was "to situate more class actions in federal court ab initio and to make it easier for defendants in a state court class action to remove the action to federal court."  Slip Op. 4. 

Gibson, Dunn & Crutcher LLP

Gibson, Dunn & Crutcher’s Class Action Group is available to assist in addressing any questions you may have regarding these issues.  Please contact the Gibson Dunn attorney with whom you work or any of the following members of the Class Action Group:

Gail E. Lees – Chair, Los Angeles (213-229-7163, glees@gibsondunn.com)
Andrew S. Tulumello – Vice-Chair, Washington, D.C. (202-955-8657, atulumello@gibsondunn.com)
G. Charles Nierlich – Vice-Chair, San Francisco (415-393-8239, gnierlich@gibsondunn.com)
Christopher Chorba – Los Angeles (213-229-7396, cchorba@gibsondunn.com)

© 2010 Gibson, Dunn & Crutcher LLP

Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.