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October 22, 2010Client Alert

Cappuccitti v. DirecTV, Inc.: The Eleventh Circuit Reverses Earlier Decision on Federal Subject Matter Jurisdiction Requirements for Class Action Lawsuits

On July 19, 2010, the United States Court of Appeals for the Eleventh Circuit issued its (by now) infamous Cappuccitti decision by which it substantially limited the ability of federal courts to hear (and for defendants to remove) putative class action lawsuits by holding that the Class Action Fairness Act of 2005 (“CAFA”) requires at least one putative class member to have alleged at least $75,000 in damages. Cappuccitti v. DirecTV, No. 09-14107, slip op. (11th Cir. July 19, 2010).

By way of brief background, CAFA substantially changed the class action landscape by creating federal subject matter jurisdiction for certain types of class action lawsuits that could not otherwise be heard by the federal courts. Typically, under CAFA, a federal court has jurisdiction over a class action if: (i) the putative class consists of at least 100 members; (ii) at least one plaintiff and one defendant are diverse, i.e., from different states (so-called minimal diversity) and (iii) the aggregated amount in controversy exceeds $5 million. Because most consumer class actions rarely involve federal questions and generally consist of numerous claims for often relatively small sums, CAFA was passed, among other reasons, to limit forum shopping (i.e., picking a court that is thought to be more favorable) and to provide defendants greater access to federal courts where appropriate.

By its July 19, 2010, decision, the Eleventh Circuit dismissed the Cappuccitti case, which was filed as a class action in the Northern District of Georgia under CAFA, reasoning that the case did not satisfy the requisite jurisdictional requirements to be heard in federal court. While instructing the district court to dismiss the case due to lack of federal subject matter jurisdiction, the Court held that for class actions originally filed under CAFA, at least one plaintiff must assert damages of $75,000 or more to meet federal jurisdictional requirements. Id. at *2. To hold otherwise, the Court stated, would “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.” Id. at *3. While Congress intended CAFA to expand federal jurisdiction over class actions, the Cappuccitti Court could not imagine Congress intended such an expansive result and therefore held that, in order to properly vest subject matter jurisdiction in federal courts, at least one plaintiff must allege damages of at least $75,000. Id. at *4.

The Cappuccitti decision immediately put the Eleventh Circuit at odds with all other circuits in that no other circuit applied the amount in controversy requirement of 28 U.S.C. § 1332 ($75,000) to putative class actions originally filed in federal court; rather, in the Second, Third, Fifth, Sixth, Seventh, Eighth and Tenth Circuits, for example, CAFA jurisdiction may be predicated on minimal diversity and an aggregated $5 million in controversy.

Recently, the same three-judge panel revisited their July 19, 2010 decision. In a per curiam opinion issued on October 15, 2010, the Cappuccitti Court stated that:

We based our [July 19, 2010] decision on our interpretation of the jurisdictional requirements of [CAFA], which we have elsewhere called a ‘statutory labyrinth.’ Subsequent reflection has led us to conclude that our interpretation was incorrect. Specifically, CAFA’s text does not require at least one plaintiff in a class action to meet the amount in controversy requirement of 28 U.S.C. § 1332(a). Accordingly, we construe both parties’ petitions for rehearing en banc to include petitions for panel rehearing, vacate our earlier opinion, and replace it with this one.

Cappuccitti v. DirecTV, No. 09-14107, slip op. at *2 (11th Cir. Oct. 15, 2010) (emphasis added & internal citations omitted). In holding that the Northern District of Georgia (the federal trial court) had original subject matter jurisdiction, the Cappuccitti Court noted that “[t]here is no requirement in a class action brought originally or on removal under CAFA that any individual plaintiff’s claim exceed $75,000.” Id. at *5 (citations omitted). The Cappuccitti Court concluded that CAFA was satisfied in that the putative class exceeded 100 persons, the amount in controversy exceeded $5M in the aggregate and minimal diversity existed as DirectTV was a California corporation and at least one plaintiff was from a state other than California (specifically, Georgia). See id. at **6-7. The Court then proceeded to address the arbitration provision that had actually been before it in the original case and found that DirecTV's arbitration provision was not unconscionable. Id. at *16.

With its recent ruling, the Eleventh Circuit has brought itself back into line with other federal circuits regarding its interpretation and application of CAFA, as well as its requirements for federal subject matter jurisdiction over putative class action lawsuits. Defendants faced with putative class action litigation are well-advised to consider removal to federal court under CAFA even if the case is not immediately removable under “more traditional” removal rules, namely, federal question jurisdiction under 28 U.S.C. § 1331 and diversity jurisdiction under 28 U.S.C. § 1332.
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