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Eleventh Circuit CAFA Decision Creates Uncertainty

By Elenore Cotter Klingler, Litigation News Associate Editor – September 2, 2010

Editor’s Note: This article was originally published on September 2, 2010. On October 15, 2010, the Eleventh Circuit vacated [PDF] its earlier opinion and held that the district court did have jurisdiction under CAFA. In the new opinion, the appellate panel described CAFA as a “statutory labyrinth” and conceded their earlier interpretation of the statute was “incorrect.” The panel stated: “CAFA’s text does not require at least one plaintiff in a class action to meet the [$75,000] amount in controversy requirement of 28 U.S.C. § 1332(a).” Having established jurisdiction, the court moved on to the substantive issue before it regarding the parties’ arbitration clause.

The U.S. Court of Appeals for the Eleventh Circuit has issued a decision analyzing the amount in controversy requirements for originally filed cases under the Class Action Fairness Act of 2005, which is creating uncertainty and debate among class action litigators.

Subject Matter Jurisdiction under CAFA
CAFA substantially changed the class action landscape in 2005 by creating specialized jurisdiction in federal court for class action cases. The law amended 28 U.S.C. § 1332 to permit federal courts to hear class action cases of at least 100 members when the parties are minimally diverse and the aggregate damages exceed $5 million.

In Cappuccitti v. DirecTV, Inc. [PDF], the Eleventh Circuit held that the case before it, originally filed as a class action in the Northern District of Georgia under CAFA, did not meet the jurisdictional requirements to be heard in federal court.

While instructing the district court to dismiss the case due to lack of jurisdiction, the court held that in class actions originally filed under CAFA, at least one plaintiff must assert damages of over $75,000 to meet the jurisdictional requirements of Section 1332(a).

To do otherwise, the court stated, would “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.”

The Cappuccitti case, which involved early-termination fees charged by DirecTV, was on appeal from an order finding an arbitration clause unenforceable. According to the attorneys arguing the case, subject matter jurisdiction was never questioned at any point in the case until the appellate panel raised the issue during oral argument.

Wrongly Decided or Just Following the Statute?
“Surprising is the word to describe this case,” says Greg C. Cook, Birmingham, AL, cochair of the ABA Section of Litigation’s Class Actions and Derivative Suits Committee. One problem with the decision, Cook says, is that the court appears to have imported the $75,000 jurisdictional requirement from one part of Section 1332 into another.

“I think that the CAFA portion of Section 1332 is clearly an independent grant of jurisdiction,” says Cook, “not one that’s derivative of traditional diversity jurisdiction. It’s an independent prong, and it’s mandatory—it says ‘shall.’ I don’t believe there is any argument for a textual interpretation of this statute to import the $75,000 requirement into CAFA.”

In its decision, the court relied upon a statutory subsection, Section 1332(d)(11)(B)(i), that specifically makes the $75,000 amount in controversy requirement of Section 1332(a) applicable to “mass actions” removable under CAFA. The plaintiff class in Cappuccitti alleged a “class action,” which is covered by different provisions of CAFA.

“It seems pretty clear there was confusion between ‘mass actions’ and ‘class actions’ under the CAFA statute that led to this mistaken ruling,” says Melissa D. Ingalls, Los Angeles, attorney for DirecTV.

Another problem, says Kristen L. Sagafi, San Francisco, attorney for the plaintiff class in Cappuccitti, is that the court effectively drew a distinction between originally filed and removed class actions in its analysis.

“The result that accrues from this case as written is that a plaintiff could not file her case in federal court as an initial matter without more than $75,000 in damages, but if she filed in state court, it could still be removed to federal court absent that $75,000 requirement. In our view, the jurisprudence is clear that there can’t be a distinction between original and removal jurisdiction. The opinion creates a tension there that we think is incorrect.”

While some commentators believe the decision was made incorrectly, Daniel R. Karon, Cleveland, cochair of the Antitrust Subcommittee of the Section’s Class Actions and Derivative Suits Committee, says that he can appreciate the court’s decision.

“I didn’t see the court conflating the two types of cases,” he says, “so much as I saw the court respecting the language of Section 1332, most notably subsection (a), which requires an amount in controversy exceeding $75,000, and until such time as Congress collapses subsection (a) into the amendments that are CAFA, I can understand how the court can require it.”

Lasting Impact?
Whether one agrees with the decision or not, it is currently the law of the Eleventh Circuit.

Among other concerns, Cook wonders how the case will affect multidistrict litigation. “Will this opinion cause the MDL panel not to send cases to the Eleventh Circuit?” he asks. “I think the panel would take that into consideration.”

In fact, Ingalls says that a California judge hearing a multidistrict case against DirecTV has already asked for briefing on how the Cappuccitti decision might affect his jurisdiction.

The attorneys for both the plaintiff class and DirecTV contend that the decision was wrongly decided and have independently filed motions for rehearing en banc. At the time this article was published, those motions were still pending.

Keywords: Litigation, Eleventh Circuit, class actions, CAFA

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