In an action, a Tennessee District Court adopted the magistrate judge’s recommendation, where he refused to dismiss a case sua sponte on the issue of subject matter jurisdiction. The magistrate judge was of the view that when a case is referred to a magistrate by district court, he is bound to the extent of referral, which in this case was class certification; as a result, dismissing the case sua sponte would mean that he would be exceeding his jurisdiction.
The plaintiffs brought this action on behalf of three proposed classes alleging breaches of contract, violations of Tennessee Time-Share Act, unjust enrichment, and conspiracy by the defendants in connection with the management agreements of three time-share developments located in Sevier County, Tennessee. The developments at issue were known as the Gatlinburg Town Square (“GTS”), Gatlin burg Town Square Resort Condominium II (“GTSII”), and Mountain Meadows Resort Condominiums (“MM”). Defendants were the managing agents of GTS, GTSII, and MM for over a decade. The plaintiffs alleged that the defendants did not have a license to transact business or licensed real estate firm, but still collected millions of dollars to which it was not entitled, all to the detriment of the plaintiffs and members of proposed classes. The plaintiffs filed a motion for class certification, and the magistrate judge recommended that it be granted.
The plaintiffs moved to certify three classes: the GTS class, the GTS II class, and the MM class. The defendants responded by arguing that the plaintiffs had not met the jurisdictional threshold of $5 million. At the very outset, the magistrate judge noted that despite the defendants’ focus on CAFA, and the court’s lack of subject matter jurisdiction, the defendants had not filed a motion to dismiss. At the oral arguments, the magistrate judge noted, counsel for the defendants stated that he expected the court to raise the issue of dismissal based upon a failure to comply with CAFA sua sponte upon reviewing the defendants’ response. The magistrate judge remarked that he cannot address the CAFA issue and potentially dismiss the case for two reasons:
- The defendants’ failure to file a motion to dismiss had denied the plaintiffs an opportunity to properly brief the issue; and
- The Chief District Judge had not referred the issue of dismissal of this case to the magistrate judge, and by dismissing the case sua sponte would exceed the scope of the District Judge’s referral in this case.
Having thus ruled, the magistrate judge considered the Fed. R. Civ. P. 23 requirements, and found that the plaintiffs satisfied the requirements, and accordingly recommended certification of all the classes, which the District Court adopted in its entirety.