Class (De-)Certification
Proof of Classwide Injury & Damages Found Possible in Target Data Breach Litigation

CAFA PRIMER

By: Kate SpelmanCafa

This post is intended to give readers a basic understanding of the Class Action Fairness Act of 2005 (“CAFA”).  This post is not intended to be a comprehensive review or recitation of the law.

Many litigators perceive state courts as more plaintiff-friendly than their federal counterparts.  As such, plaintiffs often prefer litigating class action lawsuits in state court, while defendants prefer removing these suits to federal court.

However, federal courts have limited subject matter jurisdiction, as they can generally hear only two types of cases: (1) cases involving federal law (“federal question jurisdiction”), and (2) cases involving parties from different states where the amount in controversy exceeds

$75,000 (“traditional diversity jurisdiction”).  By nature, class action lawsuits rarely meet the stringent requirements for traditional diversity jurisdiction because the citizenship of at least one defendant and one class member often overlap, and individual class members frequently seek relatively small sums of money.[1]  Consequently, prior to the passage of CAFA in 2005, unless a case involved a question of federal law, defendants were often forced to litigate class actions in state court.

This changed in 2005, when congress passed CAFA in an effort to liberalize the diversity requirements for class action lawsuits in federal court.[2]  Under CAFA, federal courts can exercise diversity jurisdiction when (1) the class consists of more than 100 members; (2) at least one class member is diverse from at least one defendant (“minimum diversity”); and (3) more than $5 million, in aggregate, is in controversy.[3]

Since the passage of CAFA, plaintiffs have attempted creative end-runs around the aggregated amount-in-controversy threshold by arguing — seemingly against self interest — that their putative classes are entitled to less than $5 million in damages.  However, the Supreme Court has thus far stifled plaintiffs’ creativity.  For example, in Dart Cherokee Basin Operating Co. v. Owens, 135 S. Ct. 547 (2014), a plaintiff brought a putative class action lawsuit in state court seeking “fair and reasonable” damages for underpaid royalties.  The defendant sought to remove the case to federal court, alleging that the purported underpaid royalties totaled more than $8.2 million.  The plaintiff claimed that the defendant’s removal notice was deficient because it lacked evidence that the amount in controversy actually exceeded $5 million.  The Supreme Court rejected the plaintiff’s argument, explaining that a notice of removal need only include “a plausible allegation that the amount in controversy exceeds the jurisdictional threshold,” not evidentiary submissions.[4] 

Similarly, in Standard Fire Insurance Co. v. Knowles, 133 S. Ct. 1345 (2013), the plaintiff filed a putative class action in state court and stipulated that the class would seek no more than $5 million in damages in order to stay below the CAFA threshold.  The Supreme Court rejected the plaintiffs’ approach, holding that pre-certification stipulations are not binding on absent class members and therefore cannot serve as an impediment to CAFA jurisdiction.  As such, the defendant was permitted to remove the case to federal court.

Class action plaintiffs seem to be running out of places to hide from the growing reach of federal court jurisdiction.  Some plaintiffs may still find refuge in state court by splitting larger class actions into smaller, separate lawsuits to avoid crossing the $5 million CAFA threshold.[5]  However, this practice arguably runs afoul of the Supreme Court’s assertion in Standard Fire Ins. Co. that “CAFA’s primary objective is to ensure federal court consideration of interstate cases of national importance.”[6]  Ultimately, class action plaintiffs may be unable to avoid the broad reach of federal jurisdiction under CAFA.



[1] See Zahn v. International Paper Co., 414 U.S. 291 (1973).  However, note that in 2005, shortly after Congress passed CAFA, the Supreme Court clarified that federal courts may adjudicate claims for less than $75,000 as long as (at least) one claim is greater than $75,000.  See Exxon Mobil, Inc. v. Allapattah Servs., Inc., 545 U.S. 546, 559 (2005).

[2] CAFA did not replace the previous rules for diversity jurisdiction.  Rather, CAFA merely expanded diversity jurisdiction for class actions.

[3] 28 U.S.C. § 1332(d)(2). 

[4] Id. at 549.

[5] Courts differ in how strictly they scrutinize whether a plaintiff is attempting to artificially avoid CAFA removal.  Compare Freeman v. Blue Ridge Paper Prods., Inc., 551 F.3d 405, 407-08 (6th Cir. 2008) (holding that “there was no colorable reason for breaking up the lawsuit in this fashion, other than to avoid federal jurisdiction”) with Marple v. T-Mobile Cent. LLC, 639 F.3d 1109, 1111 (8th Cir. 2011) (allowing separation of lawsuits “where there is no indication that [plaintiff] artificially divided the lawsuit to avoid the CAFA”)).

[6] 133 S. Ct. at 1346 (internal citations omitted).

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