Wednesday, July 21, 2010

Eleventh Circuit Court of Appeals narrows scope of class-action reform law

The United States Court of Appeals for the Eleventh Circuit has ruled that the federal Class Action Fairness Act (CAFA), passed in 2005, requires at least one defendant in a class action originally filed in federal court to meet the jurisdictional minimum normally required for federal diversity subject-matter jurisdiction ($75,000, exclusive of interest and costs) in order to confer subject matter on this class. The ruling, in Cappuccitti v. DirecTV, Inc., effectively precludes federal subject-matter jurisdiction in the vast majority of class actions, since such actions typically do not involve individual class member damages reaching such amount. The case involved allegations that DirectTV charged fees to users canceling its television service in violation of Georgia law.

The Class Action Fairness Act was passed with a primary purpose of creating exclusive federal jurisdiction for certain class actions – specifically those having total alleged damages for class members in excess of $5,000,000 – as federal courts are viewed by some as being more friendly to corporate interests than state courts. In Cappuccitti, the Eleventh Circuit, which reviews federal cases arising from Georgia, Florida, and Alabama and is the final stage of appeals prior to the United States Supreme Court, ruled that applying the $5,000,000 aggregate requirement of CAFA without also applying the $75,000 limit for at least one party would turn federal courts, which usually handle larger civil suits than the average state court case, into a “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 court then concluded that this was not the intent of CAFA, and remanded the case to the district court with direction to dismiss for lack of subject-matter jurisdiction.

A motion for rehearing is expected to be filed by August 9, 2010. Depending on the outcome, a petition to the United States Supreme Court could be forthcoming.

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