In a decision that could render the Class Action Fairness Act (“CAFA”) virtually meaningless, the Eleventh Circuit recently held sua sponte that CAFA does not allow for federal court jurisdiction over class actions unless the amount in controversy for at least one plaintiff (or class member) exceeds $75,000. Should this decision hold up, courts in the Eleventh Circuit would lack jurisdiction over virtually all consumer class actions, most of which involve modest claims, whether they are originally filed in or subsequently removed to federal court.

As you may know from previous posts on this blog, Congress enacted CAFA in 2005 to curb “abuses of the class action device,” including state courts being overly friendly toward class certification, insufficient notice being provided to putative class members, and favoring some plaintiffs over others in making class awards. CAFA was supposed to situate more class actions in federal court and make it easier for defendants in a state court action to remove the action to federal court. CAFA provides federal courts with original jurisdiction over class actions in which the amount in controversy exceeds $5,000,000 (aggregating individual class member claims to meet this threshold) and there is minimal diversity (at least one plaintiff and one defendant are from different states).

In Cappuccitti v. DirecTV, Inc., No. 09-14107 (11th Cir. July 19, 2010), plaintiffs sued DirecTV seeking the recovery, on behalf of themselves and those similarly situated DirecTV subscribers in Georgia, of the fees DirecTV charges its subscribers for canceling their subscriptions prior to the subscriptions’ expiration. The fees ranged from $175 to $480 per subscriber. DirecTV moved to compel plaintiffs to submit to arbitration, per the arbitration and class action waiver provision in the DirecTV subscriber agreements, and to dismiss the complaint for failure to state a claim. Plaintiffs did not move to dismiss for lack of subject matter jurisdiction. The district court dismissed plaintiffs’ complaint for failure to state a claim, and plaintiffs appealed. On appeal, the Eleventh Circuit held that the district court lacked jurisdiction to entertain the complaint, it vacated the district court’s order, and remanded the case with instructions to dismiss the complaint.

In its opinion, the Court held that “in a CAFA action originally filed in federal court [under 28 U.S.C. § 1332(d)(2)], at least one of the plaintiffs must allege an amount in controversy that satisfies the current congressional requirement for diversity jurisdiction provided in 28 U.S.C. § 1332(a).” The Court held further that:

Such a conclusion is compelled by the language of § 1332 as well as the general principle that federal courts are tribunals of limited jurisdiction whose power to hear cases must be authorized by the Constitution and by Congress . . . If we held that § 1332(a)’s $75,000 requirement for an individual defendant did not apply to § 1332(d)(2) cases, we would be expanding federal court jurisdiction beyond Congress’s authorization. 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 $5,000,000 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.

While on its face this holding appears to apply only to actions originally filed in federal court, the language in this decision suggests that it could also apply to cases removed to federal court – a case can be removed under 28 U.S.C. § 1441 only if the federal court has original jurisdiction of the action.

The Court also held that the $75,000 requirement “expressly applies in actions removed under CAFA, 28 U.S.C. § 1332(d)(11)(B)(i), and we can think of no reason why Congress would have intended the requirement in the context of CAFA removal jurisdiction but not CAFA original jurisdiction.” However, § 1332(d)(11)(B)(i) is CAFA’s mass action provision, which is irrelevant to jurisdiction over class actions. Indeed, there is no mention of § 1332(a), nor its $75,000 requirement, in § 1332(d)(2) – CAFA’s section granting jurisdiction over class actions.

If this decision were to hold, companies that find themselves subject to consumer class actions within the Eleventh Circuit essentially will lose the benefits of CAFA and should expect to litigate those disputes in state, rather than federal, court.

The deadline for a petition for rehearing is August 9, 2010.

Does Cappuccitti Mark The End Of Federal Jurisdiction Over Consumer Class Actions In The Eleventh Circuit?