Shah v. Hyatt Corp., No. 10-1492, 2011 WL 1570598 (3d Cir. April 27, 2011).Top of Form

In this case, the Third Circuit held that 28 U.S.C. § 1367, which gives federal courts discretionary power to exercise supplementary jurisdiction over state law claims, does not permit federal courts to decline original jurisdiction on state law claims based on diversity under § 1332(a).

Anjali Shah, who worked as an assistant manager for the Hyatt Regency, Philadelphia, initiated a class action in the Court of Common Pleas, alleging that the Hyatt Corporation systematically failed to compensate her and other assistant managers throughout the Commonwealth for hours worked in excess of forty hours per week, in violation of the Pennsylvania Minimum Wage Act, and the Wage Payment and Collection Law.  Shah brought no federal claims.

Hyatt, an Illinois corporation incorporated in Delaware, removed the action to the District Court citing 28 U.S.C. §1332(a), the general diversity statute. Hyatt alleged that there was complete diversity between the parties and that the amount in controversy for Shah’s claim exceeded $75,000, allowing a federal court to exercise supplemental jurisdiction over the entire putative class. 

Shah moved for remand, arguing that CAFA, § 1332(d) did not confer federal jurisdiction because her complaint limited the class size and damages such that the class did not exceed 100 people and the amount in controversy did not exceed $5 million. Shah did not respond to Hyatt’s § 1332(a) diversity argument. 

The district court remanded the action to state court, and upon appeal, the Third Circuit reversed the order.

The Third Circuit observed that the district court had correctly found that it lacked jurisdiction under CAFA, because Shah had explicitly limited the class damages to less than $5 million. The Third Circuit also found that the district court rightly found that it had original jurisdiction over Shah’s individual claims based on diversity under § 1332(a), because Shah and Hyatt are citizens of different states and Shah’s claim likely exceeded $75,000. 

Nonetheless, the district court declined to exercise supplemental jurisdiction under 28 U.S.C. § 1367 over the class claims and remanded the entire action to state court. Citing Borough of West Mifflin v. Lancaster, 45 F.3d 780, 787 (3d Cir. 1995), the Third Circuit found that because § 1367 grants district courts the discretion to remand claims over which they have supplemental jurisdiction, but not claims over which they have original jurisdiction, the district court committed an error in remanding the entire action.

The Third Circuit explained that when a district court has original jurisdiction over a claim, § 1367 grants that court supplemental jurisdiction over sufficiently related claims. In Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 549 (2005), the Supreme Court held that § 1367 permits a federal court to exercise supplemental jurisdiction over the claims of all class members so long as the named plaintiff has a claim in excess of $75,000.  In such cases, neither Exxon Mobil nor the statute requires a district court to exercise supplemental jurisdiction, and § 1367(c) controls when a district court can exercise its discretion to decline supplemental jurisdiction. By the same token, neither Exxon Mobil nor § 1367 allows a federal court to decline a case over which it has original jurisdiction. (Editors’ Note: See the CAFA Law Blog analysis of Exxon Mobil posted on September 22, 2005).

But, here, the district court, after correctly determining that it had original jurisdiction under § 1332, considered the factors in § 1367(c) and found that they warranted remanding the claims over which it could exercise supplemental jurisdiction. The Third Circuit found no error in this determination. In choosing to do so, however, the district court went a step too far when it remanded Shah’s claim because § 1367 does not permit a federal court to decline original jurisdiction.

For the foregoing reasons, the Third Circuit reversed the district court’s order remanding the entirety of the case to state court. It directed the district court to exercise jurisdiction over Shah’s claim and, in its discretion, determine anew whether to exercise supplemental jurisdiction over the claims over which it does not have original jurisdiction consistent with Borough of West Mifflin.