11th Cir. Holds CAFA Jurisdiction Remains Even When Class Claims Are Dismissed Before Certification

The U.S. Court of Appeals for the Eleventh Circuit recently held that federal courts that have original subject matter jurisdiction over state law claims under the federal Class Action Fairness Act retain that jurisdiction even when the class claims are dismissed before the class is certified.

A copy of the opinion is available at:  Link to Opinion.

An FBI investigation found evidence that some employees of a fuel supplier that operates the largest chain of truck stops in the United States engaged in a conspiracy to defraud the supplier’s purchasers. One purchaser filed a putative class action on behalf of itself and others similarly situated in federal court against the fuel supplier.

The purchaser brought the following state and federal law claims: (1) violations of 18 U.S.C. § 1962(c) for racketeering; (2) violation of 18 U.S.C. § 1962(d) for conspiracy to commit racketeering; (3) breach of contract under state law; (4) deceptive trade practices in violation of state law; (5) unjust enrichment under state law; (6) fraudulent misrepresentation under state law; (7) negligent misrepresentation under state law; and (8) suppression of the proper discounts owed to the class members under state law.

The purchaser based federal subject matter jurisdiction over all eight claims under CAFA, 28 U.S.C. § 1332(d).  The purchaser also claimed federal question jurisdiction under 28 U.S.C. § 1331 for the federal racketeering claims, diversity jurisdiction under 28 U.S.C. § 1332(a), and supplemental jurisdiction under 28 U.S.C. § 1367.

The district court dismissed both of the purchaser’s federal racketeering claims and its state law claims for fraudulent misrepresentation, negligent misrepresentation, suppression of discounts, and deceptive practices.  This left the breach of contract and unjust enrichment claims, asserted both individually and on behalf of a putative class.

While this case was pending, a rival class action suit reached a court approved settlement in the U.S. District Court for the Eastern District of Arkansas.  The parties in this matter acknowledged that the Arkansas settlement would deprive the purchaser of standing to pursue its class claims.  Consequently, the district court dismissed all class claims in the complaint.  At this point, solely the individual breach of contract and unjust enrichment claims survived.

Meanwhile, six other separate suits were pending against the fuel supplier in five other federal judicial districts brought by parties who had opted out of the nationwide Arkansas class settlement and who were making similar claims as the corporation.  The six suits were consolidated with the purchaser’s suit into one multidistrict-litigation (“MDL”) proceeding in the U.S. District Court for the Eastern District of Kentucky.  Subsequently, the MDL court became aware of information that deprived it of diversity jurisdiction.  Without deciding jurisdiction under CAFA, the MDL court remanded this case to the Alabama district court.

On remand, the purchaser moved to dismiss its remaining claims without prejudice in order that it could refile in Alabama state court.  The district court dismissed the claims without prejudice.  The fuel supplier appealed.

As you may recall, under CAFA, a federal trial court has original jurisdiction over a putative class action if the amount in controversy exceeds $5 million as aggregated from the claims of the individual class members, the suit is brought as a class action for a proposed class with at least 100 members, and any member of the class is a citizen of a state different from any defendant.

The Eleventh Circuit examined its ruling in Vega v. T-Mobile USA, Inc., 564 F.3d 1256 (11th Cir. 2009), a case removed from state to federal court.  There, the Court found that a failure to certify a class does not divest the federal courts of subject matter jurisdiction under CAFA.  The Court reasoned that “‘jurisdictional facts are assessed at the time of removal; and post-removal events (including non-certification, de-certification, or severance) do not deprive federal courts of subject matter jurisdiction.'”

The Eleventh Circuit noted that every circuit court since Vega to consider the question has held that post-removal events do not oust CAFA jurisdiction.  In fact, the reasoning in Vega was explicitly adopted by the U.S. Court of Appeals for the Seventh Circuit in Cunningham Carter Corp. v. Learjet, Inc., 592 F.3d 80 (7th Cir. 2010).

The Eleventh Circuit clarified that a case under CAFA can be dismissed for lack of jurisdiction if those claims contain frivolous attempts to invoke CAFA jurisdiction.  However, the Eleventh Circuit noted, in these cases, the federal court did not lose CAFA jurisdiction, but rather the court never had jurisdiction in the first place.

Next, the Eleventh Circuit addressed whether there is a different result in this matter because the purchaser filed directly in federal court under CAFA but wished to refile in state court.

The Court explained that there was a policy distinction between removal cases and cases initially filed in federal court.  The Court cautioned that in removal cases there were concerns about forum manipulation that dictate against a plaintiff’s post-removal amendments to affect jurisdiction.  As a result, the Eleventh Circuit noted, a court should guard against a plaintiff whose case was removed to federal court and who then amends its pleadings to manipulate its way back into state court.

On the other hand, the Eleventh Circuit explained that there were no forum manipulation concerns when the plaintiff chooses a federal forum and then pleads away jurisdiction through amendment.  In the situation where a plaintiff files a complaint in federal court and then voluntarily amends the complaint, courts should look to the amended complaint to determine jurisdiction.

However, the Eleventh Circuit distinguished this case from those where a plaintiff files in federal court and amends out of CAFA.  The parties in this action did not suggest any action by the purchaser that divested the federal courts of CAFA jurisdiction.  Rather, the purchaser argued that the district court’s dismissal of the class claims after the settlement in the Arkansas case destroyed CAFA jurisdiction.

However, the Eleventh Circuit noted that the Arkansas settlement occurred after the corporation filed its complaint.  Moreover, the Court noted, there was no evidence that the complaint was frivolous or deficient under CAFA at the time it was filed.

The Eleventh Circuit found no basis for distinguishing cases originally filed in federal court under CAFA from those removed to federal court when the post-filing action that did away with the class claims is not an amendment to the complaint.   Accordingly, the Court held that CAFA continued to confer original federal jurisdiction over the purchaser’s remaining state law claims in the suit.

Last, the Eleventh Circuit did not agree with the trial court’s decision to analyze supplemental jurisdiction because supplemental jurisdiction has a role in CAFA cases only in those that have state-law claims that were never subject to CAFA jurisdiction.  Here, there is no dispute that all eight federal and state claims were properly pleaded as CAFA claims.  Consequently, the trial court had original jurisdiction over all eight claims.

Accordingly, the Eleventh Circuit reversed the trial court’s dismissal and remanded for further proceedings.

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Allan Enriquez is an experienced litigator based in Maurice Wutscher's Chicago office. Allan has worked at law firms in Chicago and Los Angeles, where he has represented businesses and law firms in complex commercial, professional liability, products liability, insurance defense, and civil rights matters, among others. These matters were venued throughout the country including California, Illinois, Georgia, New York, Puerto Rico, and Kansas. Allan has briefed and argued substantive motions in state courts and has briefed issues of first impression in the U.S. Court of Appeals for the Seventh Circuit. He has negotiated cases in private mediation to successful results for his clients and is well versed in all aspects of discovery, including taking depositions. Allan graduated from the University of Michigan with a Bachelor of Arts in Political Science and Philosophy. He subsequently earned his Juris Doctor from UCLA School of Law. While in law school, Allan worked for a major media corporation on licensing agreements and he was an extern for the Hon. Dolly M. Gee of the U.S. District Court for the Central District of California.