What are the Jurisdictional Requirements for the Class Action Fairness Act

The Class Action Fairness Act (CAFA) of 2005 expanded federal courts' ability to exercise subject matter jurisdiction over class actions filed in state court. It allows defendants to remove class actions to federal court when they meet certain standards, including a minimum number of class members and a minimum monetary amount in controversy. Understanding whether a federal court can hear a particular class action requires understanding how the U.S. Constitution and federal law establish federal courts' jurisdiction over various types of lawsuits.

What is Subject Matter Jurisdiction?

In order for a federal district court to be able to hear a case, it must have jurisdiction over both the parties involved in the case and the subject matter of the lawsuit. These are known as personal jurisdiction and subject matter jurisdiction, respectively. Article III of the Constitution establishes very general principles regarding federal courts' subject matter jurisdiction, including constitutional standing, which you can read about here. It leaves it to Congress to work out the details.

Congress has identified several types of subject matter jurisdiction, based on the guidelines provided by Article III. "Federal question jurisdiction" allows federal courts to hear cases that specifically involve federal law. A lawsuit asserting claims under a federal statute, such as the Sherman and Clayton Acts for federal antitrust claims, would fall under this type of jurisdiction. "Supplemental jurisdiction" allows federal courts to hear claims arising under state or local law if they are closely related to claims over which the court has jurisdiction.

You can read more here about the general requirements for defendants to remove cases from state court to federal court.

CAFA involves "diversity jurisdiction," which allows federal courts to hear cases between parties from different states. Diversity jurisdiction can apply even when the causes of action asserted in a lawsuit solely involve state law.

Diversity Jurisdiction in Federal Courts

Article III states that the federal government's "Judicial Power shall extend...to Controversies...between Citizens of different States." This led Congress to establish diversity jurisdiction in the Judiciary Act of 1789. It has modified the criteria over the years. Currently, a U.S. district court may exercise diversity jurisdiction over a case that meets the following criteria:

  1. The amount in controversy is at least $75,000; and
  2. The parties to the lawsuit are citizens of different states or foreign countries.

Courts have interpreted the second criterion very narrowly. They typically require total diversity between the plaintiffs and the defendants. This is often easy to establish in lawsuits with a small number of parties. An individual citizen of California can establish diversity jurisdiction without much trouble in a lawsuit against an individual citizen of any other state or foreign country.

Corporations can make diversity jurisdiction more complicated. They are deemed to be "citizens" of the states where they are incorporated and where they maintain their headquarters. A California citizen would probably be successful in arguing for diversity jurisdiction in a lawsuit against a corporation incorporated in Delaware and headquartered in New York. If the corporation maintains significant business operations in California, diversity jurisdiction could be trickier.

Lawsuits with large numbers of parties increase the likelihood of a lack of diversity. In a class action against a large corporation, even one plaintiff from the same state as the defendant could derail an attempt to establish diversity jurisdiction, at least under the law before CAFA.

Expanded Diversity Jurisdiction Under the Class Action Fairness Act

Much like regular diversity jurisdiction, a class action must have a minimum amount in controversy. CAFA sets this minimum amount at $5 million. The law also only applies to class actions with 100 or more class members.

In addition, CAFA eases the requirements for diversity between plaintiffs and defendants. Instead of requiring that all opposing parties be citizens of different states or countries, it only requires that at least one class member be a citizen of a different state or country than any defendant. If a class of 1,000 plaintiffs consists of 999 citizens of California and one citizen of Nebraska, and the defendants include 10 California citizens and one citizen of Canada, this might be enough diversity to satisfy CAFA.

Courts have discretion to decline jurisdiction over a case that is otherwise eligible for removal to federal court when one-third to two-thirds of the plaintiffs and the main defendants are all citizens of the state where the lawsuit was filed. A court should base a decision to decline jurisdiction on "the interests of justice and...the totality of the circumstances," while considering factors like "whether the claims asserted involve matters of national or interstate interest."

The statute directs courts to decline jurisdiction in certain situations, including when:

  • More than two-thirds of the plaintiffs are from the state in which the case was initially filed, the injuries alleged in the lawsuit occurred in that state, and at least one defendant from the same state is allegedly responsible for a "significant" amount of the plaintiffs' claims; or
  • In the three years before the lawsuit was filed, no comparable lawsuits alleging similar facts or asserting similar claims were filed.

The statute also exempts some lawsuits from coverage for other reasons, such as class actions against a state government or state official, and class actions that only involve claims arising from laws like the Securities Act of 1933.

If you need help defending against a class action, please contact Bona Law attorneys here, or at 858-964-4589.