Cappuccitti v. DirecTV, Inc., — F.3d —, 2010 WL 2803093, No. 09-14107 (11th Cir. July 19, 2010)
(Editor’s Note: More detailed analyses of this case will be published by CAFA Law Blog in the near future – stay tuned.)
OK, gang. Pay attention. This is important. Like really important.
Earlier this week, the Eleventh Circuit surprised everyone with an opinion in Cappuccitti v. DirecTV, Inc., — F.3d —, 2010 WL 2803093, No. 09-14107 (11th Cir. July 19, 2010), that literally turned CAFA jurisdiction on its head (and knocked unsuspecting CAFA watchers on their collective rears). If the ruling stands as is (and is a controlling precedent), it would arguably require that most of the cases now in federal court within the Eleventh Circuit which are based on CAFA jurisdiction be dismissed for lack of subject matter jurisdiction. Yep. We said that. Dismissed for lack of subject matter jurisdiction. And might well serve to make the state courts within the Eleventh Circuit magnet jurisdictions for class actions and create new judicial hellholes all over the Southeast. And be cited by removed plaintiffs around the country as authoritative. And, . . . well, you get the picture. Enough of the doomsday predictions (for now).
As faithful readers of the CAFA Law Blog know, CAFA was enacted to remove the $75,000 amount in controversy and complete diversity jurisdictional requirements of Section 1332 in the context of a class action – thus greatly expanding federal jurisdiction over class actions (as was the intent of Congress). The Eleventh Circuit, however, out of the blue, held that for CAFA jurisdiction to apply, at least one of the named plaintiffs, on his or her own, must also have suffered (or at minimum, alleged) at least $75,000 in damages. Cappuccitti at 9-10. Yes, you read that correctly.
Our readers are usually pretty familiar with the nuances of 28 U.S.C. §§ 1332(a) and (d) and the legislative history of CAFA, and are probably wondering, “How did the court reach this conclusion?” Let’s take a look.
The plaintiffs initially filed a class action under Fed. R. Civ. P. 23 against DirecTV in the U. S. District Court for the Northern District of Georgia, asserting CAFA as the basis of federal jurisdiction. (For those paying attention, note that the plaintiffs asserted federal jurisdiction – this isn’t a removal.) The plaintiffs claimed that DirecTV violated Georgia common law by charging early termination fees. The complaint alleged that the parties were diverse (DirecTV is a California corporation), the class exceeded a 100 members, and that aggregated damages surpassed $5,000,000. Jurisdiction seems pretty straightforward, right? All four requirements of CAFA were met: Civil Rule 23 action? Check. Minimal diversity? Check. At least 100 members of the class? Check? Amount in controversy exceeds $5,000,000? Check. All systems go? Roger.
DirecTV then filed a motion to compel arbitration, which was denied, so it filed an interlocutory appeal to the elventh Circuit under 9 U.S.C. § 16(a)(1)(B). Rather than address the arbitration issues, however, the Eleventh Circuit instead questioned its jurisdiction over the case, a matter that was apparently neither briefed nor argued. The Court began its opinion by discussing three previous Eleventh Circuit opinions: Lowery v. Ala. Power Co., 483 F.3d 1184 (11th Cir. 2007) (Editor’s Note: see CAFA Law Blog synopsis of Lowery here); Evans v. Walter Indus., Inc., 449 F.3d 1159 (11th Cir. 2006) (Editor’s Note: see CAFA Law Blog synopsis of Evans here); and Miedema v. Maytag Corp., 450 F.3d 1322 (11th Cir. 2006) (Editor’s Note: see CAFA Law Blog synopsis of Miedema here). Each of these cases involved the removal of actions originally filed in state courts, while, as you remember (if you were paying attention), the Cappuccitti plaintiffs originally filed their class action in federal court, relying on CAFA from the onset. The opinion relies heavily on Lowery, in which, as you may also recall, jurisdiction was not based upon CAFA’s “class action” provisions, but rather CAFA’s “mass action” provisions. (If you’re interested take a look at 28 U.S.C. § 1332(d)(11), which outlines the jurisdictional requirements for “mass actions.”)
The Cappuccitti court, which also authored Lowery, noted that Lowery concluded that “‘mass actions’ removable under CAFA are class actions that meet the requirements of § 1332(d)(2) through (10).” Cappuccitti, p.6, citing Lowery, 483 F.3d at 1199-1200. In fact, the Court’s holding essentially all but eliminates the $5,000,000 threshold, as a “class action” under CAFA requires at least 100 members, but according to the court in Cappuccitti, at least one of named plaintiff’s damages must also exceed $75,000. Assuming the class suffered a similar harm (they would pretty much have had to under Fed. R. Civ. P. 23(a)(3)), and the class had least 100 members, the damages would have to start at $7,500,000, right? $75,000 x 100 = $7,500,000, right? But if Congress had intended the $75,000 amount in controversy requirement in § 1332(a) to apply to class actions under CAFA, and the class must have at least 100 members, it surely would have said so, just as it did when it made the $75,000 requirement apply to mass actions.
After the extensive discussion of Lowery and a reference to 28 U.S.C. § 1332(d), the court correctly noted that the minimal diversity and $5,000,000 thresholds were met under 1332(d)(2). Cappuccitti, p.8. The court also correctly observed that, because this was, in fact, a class action with not less than 100 potential members, the requirements of § 1332(d)(2) and (5) were also met. Analysis done. Finis. Jurisdiction exists – right? Not quite.
The court then uttered (ok, a written utterance for the purists out there) the phrase that kicked open the door to what we believe was the ultimately incorrect analysis: “[T]he requirements for an original CAFA action resemble those for a mass action removable under CAFA.” (Perhaps, but significantly, Congress did create separate threshold requirements for each, so the “resemblance” is limited.)
The court then concluded, “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 sum or value of $75,000’ and is between citizens of different States. § 1332(a).” Cappuccitti, p.9. The court reasoned that § 1332(d) was not intended to expand “federal court jurisdiction beyond Congress’s authorization.” Cappuccitti, p.10. Despite the relevant legislative history, however, the court then noted that requiring only the $5,000,000 aggregate threshold “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.”
The notion that federal courts cannot serve as “small claims courts” when aggregate claims in interstate class actions are substantial, is, however, squarely contrary to both the language of the statute and the stated intent of CAFA. Let’s start with the statute itself: "In any class action, the claims of the individual class members shall be aggregated to determine whether the matter in controversy exceeds ther sum or value of $5,000,000, exclusive of interest and costs." Section 1332(D)(6). No mention of a $75,000 amount in controversy requirement for any plaintiff or class member here. Just $5,000,000 in the aggregate.
That doesn’t seem to be ambiguous to us, and this post isn’t the place to get into a major statutory construction discussion. But if there is any ambiguity here, we’d probably bring up the importance of the legislative history so let’s have a little (legislative) history lesson. For starters, take a look at S. Rep. 109-14 at 32, U.S. Code Cong. & Admin. News 3 (2005), which states that the Act is intended to cover class actions where each plaintiff “only [has] a small financial stake in the litigation.” Sounds like Congress was ok with small claims.
Another id. at 70 (and this one is strong): “As noted previously, in some federal Circuits, the jurisdictional amount requirement in a class action is satisfied [pre-CAFA] by showing that any member of the proposed class is asserting damages in excess of $75,000 . . . [I]t will [now] be much easier to determine [under CAFA] whether the amount in controversy presented by a purported class as a whole (that is, in the aggregate) exceeds $5 million than it is to assess the value of the claim presented by each and every individual class member [to see if it reaches $75,000], as is required by the current diversity jurisdictional statute.” S. Rep. 109-14 at 70.
And see id. at 83: “By providing plaintiffs access to the [federal] courts in cases where a defendant may have caused small injuries to a large number of persons, class action procedures have traditionally offered a valuable mechanism for aggregating small claims that otherwise might not warrant individual litigation.”
And another id. at 12: prior to CAFA, “class actions often include[d] a provision stating that no class member will seek more than $75,000 in relief . . . . This leads to the nonsensical result under which a citizen can bring a ‘federal case’ by claiming $75,001 in damages for a simple slip-and-fall case against a party from another state, while a class action involving 25 million people living in all fifty states and alleging claims against a manufacturer that are collectively worth $15 billion must usually be heard in state court (because each individual class member’s claim is for less than $75,000).” S. Rep. 109-14 at 12.
Want more? “As noted above, the two most common tactics employed by plaintiffs’ attorneys [before CAFA] in order to guarantee a state court tribunal are: adding parties to destroy diversity and shaving off parties with claims for more than $75,000….Other complaints seek $74,999 in damages on behalf of each plaintiff or explicitly exclude from the proposed class anybody who has suffered $75,000 or more in damages. . . . The Committee believes that federal courts are the appropriate forum to decide most interstate class actions because these cases usually involve large amounts of money and many plaintiffs, and have significant implications for interstate commerce and national policy.” S. Rep. 109-14 at 26-27.
And “the Committee notes that as with the other elements of section 1332(d), the overall intent of these provisions is to strongly favor the exercise of federal diversity jurisdiction over class actions with interstate ramifications.” S. Rep. 109-14 at 35.
One more – Footnote 29 of the Senate Report: "The committee stresses, however, that even in those Circuits following this rule [referring to the extension of supplemental jurisdiction in Allapattah Servs. v. Exxon Corp., 333 F.3d 1248 (11th Cir. 2003) (Editor’s Note: see also Exxon Mobile Corp. v. Allapattah Services, Inc., 545 U.S. 546 (2005) and the CAFA Law Blog’s analysis of Allapattah Services here], relatively few class actions find their way into federal court because plaintiffs offer named plaintiffs who do not have $75,000 claims or name a non-diverse plaintiff or defendant in order to prevent removal of the case to federal court."
Convinced yet? We sure are. There’s more in the legislative history for those who want to drill down further, we’ll try do so in a subsequent post and get into the statutory construction issues, too.
Now. back to the decision itself. And finally, the court grafts part of the mass action provision to separate the class action provision of CAFA by finding that “the $75,000 requirement expressly applies in actions removed under CAFA, 28 U.S.C. § 1332(d)(11)(B)(i) [referencing § 1332(a)], 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.” It’s important to note the court is citing to the “mass action” section of CAFA (§ 1332(d)(11)(B)(i)), with its completely separate, additional $75,000 requirement, and applying it to the “class action” section of CAFA (§ 1332(d)(2)), which has no such requirement.
In short, Cappuccitti appears to add a new, fifth requirement to CAFA jurisdiction under § 1332(d)(2):
1. Action filed under Rule 23 or similar rule (yeah, we already knew this).
2. Aggregate class damages of $5,000,000 (uh-huh, we knew that too).
3. Minimal diversity (ditto).
4. At least 100 class members (everybody knows that).
5. The individual damages of the named plaintiff must exceed $75,000. (Now, this is something we didn’t know. We didn’t see in the statute, either.)
As Congress noted in CAFA’s Legislative History, the very purpose of class actions is to encourage people to bring claims that would, on their own, not be cost effective, given their small value. S. Rep. 109-14 at 32. As our learned readers know, very few class actions are filed where an individual’s damages exceed $75,000 (except, perhaps in Mississippi, which doesn’t have a state Rule 23). The Court’s interpretation, if correct, would have the effect of not expanding federal jurisdiction, as CAFA intended – take a look at S. Rep. 109-14 at 83, “‘The Class Action Fairness Act of 2005’ will force most state class action cases into federal courts.” (emphasis added). Rather, under Cappuccitti, CAFA jurisdiction would be significantly diminished, if not effectively gutted.
And because this new threshold in Cappuccitti could rarely be met, particularly in consumer classes (since plaintiffs wanting to avoid federal court will allege that no class member, including the named plaintiff, has more than $75,000 in controversy), CAFA cases as we now know them might all but cease to exist. And all of the prior holdings in which the new $75,000 “requirement” did not exist could arguably be considered void, or at least subject to challenge (we won’t get into retroactivity here). (Editor’s note: There is an argument that Cappuccitti conflicts with the prior Eleventh Circuit opinion in Evans v. Walter Indus., Inc., 449 F.3d 1159 (11th Cir. 2006), which holds that “[u]nder CAFA, federal courts now have original jurisdiction over class actions in which the amount in controversy exceeds $5,000,000 and there is minimal diversity (at least one plaintiff and one defendant are from different states). 28 U.S.C. § 1332(d)(2).” Id. at 1163. While the Evans opinion discusses the $5,000,000 amount in controversy requirement under CAFA, there is no mention of § 1332(a)’s “$75,000” requirement as a jurisdictional requirement.)
Maybe this isn’t the end of the world as we know it. It’s not 2012 yet. But it’s sure an earthquake of significant magnitude, with its epicenter in the Eleventh Circuit, and the possibility of a tsunami radiating outward across the country. We don’t know whether DirecTV will ask for a rehearing en banc. Stay tuned for further developments.
– Anthony Rollo
– Hunter Twiford
– Richard Freshwater